What is IR35?
IR35 is a set of tax rules which govern off payroll working. They effectively look at how those who are employed as contractors pay tax.
The rules ultimately look to prevent ‘deemed’ or ‘disguised’ employment. This is where workers employed on a self-employed contractor basis are effectively employees. But they are employed on a self-employed basis given the benefits to both the worker and employers. These benefits include:
Employers – there are no additional costs other than the fee they have agreed with the contractor. They do not have to pay holiday or sick pay for example and have no liability for National Insurance contributions.
Contractor – there are associated tax efficiencies, the ability to manage their own workload and have a more flexible schedule than if employed directly.
According to the gov.uk site ‘The rules make sure that workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same Income Tax and National Insurance contributions as employees. These rules are sometimes known as ‘IR35’.’
What changes have been made to IR35 rules and when?
Changes were made to the IR35 rules on the 6th April 2021 and bring rules for private sector businesses in line with public sector business where IR35 rule changes were made in April 2017.
The IR35 rule changes now mean that if you are a medium or large sized business, responsibility to determine an individual’s employment status and whether IR35 rules apply or not move to now sit with the client, rather than the worker.
Client is defined by gov.uk as ‘the organisation who is or will be receiving the services of a contractor. They may also be known as the engager, hirer or end client.’
For those providing services to a small business, then the responsibility to determine employment status and therefore whether IR35 rules apply remains with the worker.
The employment status which is decided by your review will determine whether a worker is subject to off-payroll working rules. If the rules do apply, then the workers fees will be subject to Income Tax and National Insurance contributions.
How have IR35 changes affected HGV drivers?
The IR35 changes could affect those HGV drivers employed via agencies on a contractor basis. It will now be necessary for the client to determine their employment status and whether IR35 rules apply.
If IR35 rules are deemed applicable, then additional income tax and national insurance contributions will be required.
What impact have IR35 changes had on HGV driver shortages?
It is thought that IR35 changes have had a significant impact on HGV driver shortages. Whilst many reports focus on the impacts of COVID-19 and Brexit, some sources suggest that as much as third of the driver shortage can be attributed to IR35 changes and drivers leaving the industry due to disputes over how much tax and National Insurance they should be paying.
Some HGV drivers operate as Ltd companies, providing their services to clients via agencies. However, this operating model has been impacted by the IR35 rule changes with the changes making it harder for HGV drivers to meet the definitions of being ‘self-employed’. For example, if a self-employed driver drives an agency vehicle, is told when to work and how to work then under the new IR35 rules it is likely that they would not be deemed as truly self-employed. To be deemed self-employed they would need to drive their own vehicle for example as an owner-operator.
This article from Contractor Weekly, quotes the Managing Director of Policy at the RHA, as stating that ‘Many companies have stopped engaging with contractors outside of IR35 and many drivers do not want to be on the payroll because it means they get paid less.’
This is a big change and means many drivers would face lower pay, and clients would see higher costs as well. And it could be one of the reasons why HGV drivers are choosing to leave the industry, or not join to begin with.
It is also thought that changes to IR35 may also make it less attractive for EU based drivers to work in the UK, as international based contractors carrying out work in the UK may be subject to the off-payroll working rules.
What continued impact will this have on the future for HGV drivers?
Recruitment of HGV drivers is difficult at the current time and has been for many years. The HGV driver shortage is not a new thing in the UK. It has just been exacerbated by factors such as COVID-19 and Brexit and become more newsworthy as the impact on supply chains becomes more visible.
IR35 rules may continue to create difficulty in the recruitment of HGV drivers unless other things change in the industry.
We are however, seeing reports of increased salaries for HGV drivers from many of the big supermarkets in a bid to attract more workers and improve the profile of the job. Some companies are offering joining bonuses and offering to pay for the cost of obtaining a licence which can be prohibitive to many. Could these changes be enough to offset losses from the IR35 changes?
But drivers also cite the working conditions as a big deterrent to working as an HGV driver. Inability to access food during the COVID pandemic when many drivers continued to work and to work longer hours to keep supply chains going, poor conditions at roadside services and associated safety for drivers sleeping in their trucks when on tramping schedules. Certainly, prospective drivers would want to see improvements in these areas.
IR35 changes are here to stay and will likely mean more drivers moving to employed status rather than self-employed. This may act as a deterrent for many drivers, but the shortage is acute, and it is likely that it will take hard work and improvements in various areas to recruit as many drivers as possible.
With increasing challenges to the haulage industry, it’s more important than ever to review your haulage fleet insurance. At Anthony Jones, as an insurance broker with proven buying power our dedicated experts can help you find the cover that you need for your business at the best possible price. Get in touch with us today on 020 8290 9099 or email us at commercial.motor@anthonyjones.com.
