Drivers and IR35 rule changes

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With the 2018 Autumn Budget recently announced, it is confirmed that as from April 2020, self-employed drivers who are contracted to a business will be treated effectively as an employee. It is a bit of a reprieve as it was feared that the change could be introduced in 2019, giving an extra year for self-employed drivers to prepare for the expected tax hit.

What is proposed?

A significant number of Drivers act as self-employed and use companies to manage their payments and tax affairs. However, with the IR35 reform, the new changes have been put in place to crack down on off-payroll working, so that firms and contractors cannot avoid dodging national insurance.

With the new reform intending that the private sector follows the same policies as the public sector, then the employer will be made responsible for determining if IR35 applies and for making the correct tax and national insurance deductions. Rather than risk getting it wrong many employers, as happened in the public sector, will make IR35 the default position.

Small businesses’ will not be affected by the new IR35 regulations, whereas the medium-sized and large businesses will have to adopt the new policies by April 2020. To be classified as a small business, the firm needs to fall within the criteria of:

• Yearly turnover does not go over than £10.2 million
• Balance sheet total must not be more then £5.1 million
• Not have more than 50 employees working for them

Profit margins in the logistics sector are already tightly squeezed and increased taxation costs, for clients and Drivers, are likely to add to the pressure. Pay has not been rising in recent years, despite the well-reported Driver shortages.

What can you do to prepare?

The Government is keen to stress that the genuinely self-employed will not be affected. They have an online tool that allows you to check your employment status for tax. There have been some criticisms of this tool in the press but it is still a good indicator of the HMRC position.

In our opinion, many Drivers will not be deemed to be self-employed if they are working for an agency such as HR GO Driving, and we will be expecting to convert Drivers on our books to PAYE payroll services.

It’s good news that we have longer to make any necessary changes to pay setups. If you are in this position and are concerned about how the changes might affect you please talk to us as soon as possible so that we can put in place a smooth transition to any new working arrangements.