Due to the impacts of COVID-19, the IR35 changes scheduled to take place in April 2020 have now been postponed. First introduced to tackle the issue of tax and NI avoidance through the use of intermediaries, the IR35 legislation is still set to be implemented with the same changes now taking place in April 2021.
These changes will directly impact industries operating in the private sector, and it is important that you, as a HGV driver, understand them as they may well affect your final salary, as well as the tax and NI that you pay.
Who is impacted by the IR35 changes and why are they being introduced into the private sector?
HMRC is making legislative changes targeted at those who provide their services through an intermediary, often a limited company, also known as a Personal Service Company. They believe that, for tax purposes, many of these individuals are essentially “disguised employees”.
The new IR35 legislation coming in April 2021 is set to ensure that those workers deemed to be “disguised employees” are taxed, through PAYE and National Insurance, in exactly the same way as any other employee.
What are the changes to IR35 in 2021 for the private sector?
To put it simply, if you are deemed to be “caught by IR35” or “inside IR35” you are effectively considered to be an employee for tax purposes.
Conversely, if you are “outside IR35” you are deemed to be self-employed and payments can be made to your limited company without tax and NI being deducted. Of course, when your limited company then pays you as an individual, tax and NI (and, potentially, dividend tax) should be deducted.
From April 2021, responsibility for determining whether the work you are carrying out is “inside IR35” (employed) or “outside IR35” (self-employed) will lie with your employer. If you happen to be working for Search, then that will be our end client, i.e. the company to whom you’ll be contracting your services. The end-client will make that decision based upon a number of factors, such as :
Whether they have control of what you do
Where you carry out your work
When you carry out your work
How you carry out your work
If you have control, you will probably be deemed to be “inside IR35” (employed).
Likewise, if you do not have the right to organise for someone else to do your work (and for them to be paid by your limited company) when you are unavailable, then you are also most likely to be classed as “inside IR35” (employed).
If a driver wants to continue to be paid through a PSC, but remain “inside IR35”, they must bear the costs of the employer’s National Insurance. The tax and NI deductions will be made by Search at source, which will impact their take home pay.
The vast majority of driving jobs are likely to be viewed as “inside IR35”, therefore, earnings arising from those roles will be subject to tax and NI.
So, how might these changes affect you?
The proposed changes are likely to have a significant impact upon how drivers are taxed in the UK. HMRC has a very clear view on the employment status of drivers. They state that:
“….. in road haulage it is rare for someone to be genuinely self-employed unless they are an owner-driver”.
This means that in their view, except in specific circumstances such as vehicle or company ownership, HMRC believes that a driver is an employee and should be subject to the necessary tax, also known as ‘inside IR35’. For now, until the particular assignment and position is assessed for each individual driver by the client, aside from speaking to an accountant or a Search consultant, the best option is to be aware of the upcoming legislation. Learn about how to stay on the right side of IR35, to avoid a large tax bill at the end of the financial year, or even a fine.
Taking all of this on board, and understanding the requirements is important. Undoubtedly, from April 2021, it is highly likely that as an agency driver, you will be deemed “inside IR35” and taxed accordingly.
What are your options following the IR35 changes?
There’s the option to become an employed “temporary worker” (known as an Associate with Search). This will entitle you to statutory benefits such as holiday pay, employer pension contributions and statutory sick pay. As an Associate, you will be subject to normal tax and NI.
For certain transport providers, it may be possible for you to become employed by an accredited umbrella company, although this will have a monthly or annual processing fee attached to it.
You may feel that, as a result of the changes, you would prefer to seek permanent employment. If that’s the case, we encourage you to speak to our permanent recruitment team at Search. They can help you to update your CV and offer you long-term career opportunities with the UK’s leading transport providers.
If you would like further guidance on this, please do not hesitate to contact Search and we will be more than happy to help.