Hopes for an 11th hour U-turn on IR35 have been dashed this week after an HMRC review confirmed that the proposed tax changes - which could see driver agency rates leap by 20% - will go ahead from April.

The IR35 review, dubbed Review of Changes to the Off-payroll Working Rules, was launched in January this year on the back of a pre-election promise from former Chancellor Sajid Javid that he would “make sure that the proposed changes are right to take forward".

The review has confirmed that the tax changes, which aim to prevent tax avoidance through the use of limited company arrangements, should go ahead.

It states: “The Government continues to believe that it is right to extend the reform to the off-payroll working rules to large and medium-sized organisations in all sectors from 6 April 2020.”

Under the changes, large and medium-sized haulage companies with net turnover of above £10m or 50 or more staff will not be able to take on drivers that work as limited companies.

Instead the driver will need to be employed as a PAYE worker - either by the haulage company or the driver agency or through an umbrella company.

The changes are predicted to add another 20% to the cost of hiring agency drivers and exacerbate the driver shortage.

However, the review has recommended some “soft landing” concessions, including exempting companies in the first year from paying penalties for any genuine errors relating to off-payroll.

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The RHA is warning large and medium-sized companies to prepare for the new legislation by determining the status of the drivers and the driver agencies they use.

RHA policy and public affairs MD Rod McKenzie told MT: “IR35 is a wake-up call to the industry to do the right thing by the law and the drivers themselves.

“It is really important hauliers put their house in order – or face severe financial penalties if they ignore it.”

Kieran Smith, CEO of Driver Require, said some major hauliers are already refusing to use drivers not on the agency’s PAYE system or drivers operating under an accredited umbrella company to ensure their drivers are IR35 compliant.

“XPO is mandating that it will only accept agency PAYE drivers or drivers from those umbrella companies that are accredited to the Freelance and Contractor Service Association (FCSA), which is the gold standard for umbrella companies.

“Three of my key clients are going to adopt the same position – because having this accreditation means these umbrella companies are fully audited by the likes of Ernst and Young and BDO with the results sent directly to HMRC.”

Smith is calling on all major hauliers to follow XPO’s example to prevent the rise of unethical umbrella companies that would undercut ethical rivals through tax avoidance schemes and potentially leave hauliers liable to pay the unpaid PAYE taxes and financial penalties.

However there are concerns XPO’s stance could see the demise of smaller agencies.

One agency owner commented: “XPO and many other large transport companies are insisting that all drivers are on the Agency PAYE system. It doesn't take account of the fact that many only drive part time and do other work through their limited company, using the driving agency side to fill gaps in their workload.

“Now we can't work for them. I only have three people on the payroll, but without this work I might have to actually shut the company down."