Ten years after the introduction of the MSC legislation, how does this rule and its follow up TAAR effect the current Agency landscape and providers of accountancy and payroll services to PSC’s?

With the change in the tax year and tax laws are amended and reviewed, comes the opportunity for the managing director of the Employment Business/Agency (“Agency”) to review the way that their Agency contracts with ‘accountants’ and ‘payroll companies’. In light of the upheaval in the public sector, what is HMRC planning in the way of the private sector in 2018?

Given that resources are thinly spread at HMRC an obvious target would be a renewed attack on work-seekers using the ten years old piece of under-used, Managed Service Companies  or (MSC) Legislation, which was beefed up in 2014 with a TAAR (Targeted Anti-Avoidance Rule) aimed at NIC avoidance.

In short, and to refresh your memory, a Managed Service Company (MSC) is a company structure that is managed and controlled by a third party that administers and influences payments to a “work seeker”.  It developed from attempts to avoid IR35, with external “advisors” controlling a freelancer’s personal service company, and therefore the work-seeker is not necessarily truly self-employed so HMRC rightly perceive that insufficient tax is being paid.

As a result, MSC legislation requires all income through this structure to be taxed as employment income, subject to PAYE and NI in full rather than the option to pay in dividends.  Any business that manages or promotes the use of an MSC is classed as an MSC provider, and therefore the work seeker is taxed accordingly.

If an MSC does not pay its taxes in full, HMRC can demand the unpaid tax from other parties, including transferring the debt personally to the other directors of the MSC, the intermediaries who formed the MSC, or those deemed to have encouraged the work-seeker to use the MSC route (potentially an unwitting Agency”). The underpaid tax can be demanded from these parties either individually or together.

Introducing a Targeted Anti-Avoidance Rule for intermediaries

David Gauke, Secretary to the Treasury speaking on 1st May 2014 introduced a further targeted anti avoidance rule.

The “Clause 5” introduces a new TAAR into the Social Security (Categorisation of Earners) Regulations 1978 (SI 1978/1689) to ensure that workers who would be employees as a result of these regulations but for the imposition of ‘artificially constructed intermediary arrangements’, are treated as employees for NICs purposes.

The TAAR is modelled on Section 46A of the Income Tax (Earnings & Pensions) Act (ITEPA) 2003 (introduced by Section 16, Finance Act 2014) which is the parallel TAAR applying for income tax purposes in relation to agency workers.

The TAAR in Clause 5 is however more broadly based in that it extends beyond purely agency workers. It also applies to (i) employees employed by a foreign employer who are supplied to a host employer in Great Britain and (ii) cases where an individual work seeker provides their services further to a contract between an end client and a UK agency.

In any event, we agree that the better approach is to broaden the primary NIC legislation to make specific provision for regulations to address situations where a TAAR may be appropriate in determining the status of earners, and who should be the secondary contributor for NIC purposes. This is what Clause 5 does, in a typically convoluted way.

The TAAR’s approach

The approach in Clause 5 is to focus on ‘the main purpose, or one of the main purposes’ of the arrangements that have been implemented in testing whether or not the TAAR should bite.  The Government therefore introduced a TAAR in the legislation to deter such avoidance. It is designed to enable HMRC to consider both:

  • the motive for setting up the arrangements in the first place
  • whether it is set up with the motive of avoiding income tax and NIC; and
  • what it achieves – whether it results in less income tax and NIC being paid.

The Chartered Instistute of Taxation commented: “HMRC would be able to use the TAAR in the most egregious cases where, for instance, an agency requires all of their workers to set up a PSC to avoid the new legislation and thus paying NIC.”

Personal Service Companies (PSCs)

This is a particular area which we think may require some further consideration and that is where work-seekers work for their own personal service company (PSC).

HMRC have said that generally speaking the recently enacted specific income tax and NIC legislation relating to work-seekers (in particular agency workers) is not intended to apply to PSCs. However, it strikes us that the potential difficulty here is that PSCs are typically established for a variety of reasons and that things are not generally so black and white. For example, an individual may decide to establish a PSC both because of the attractions of limited liability and because they may be able to reduce their tax and NICs bill at the same time, or prefer the work life balance of being self-employed in a structure that is relatively easy to operate and undestand.

For example, HMRC say that ‘in most cases the agency legislation has never applied, and will continue not to apply, to PSCs because the agency legislation does not apply where…the remuneration is not in consequence of the worker providing their services under the contract…[and] it will not apply in most cases where profits are withdrawn as dividends as this is a return on capital distribution, not remuneration in consequence of the worker providing their services’.

HMRC has also said that in so far as the TAAR is concerned then ‘people who set up PSCs for a reason other than reducing tax – such as the limited liability protections incorporation provides – would not be within the TAAR. HMRC will continue to monitor activity in these areas’.

We think it would be helpful if HMRC could set out its position on whether it is intended the TAAR should or should not apply to the PSC in these circumstances. HMRC recognises that Agencies may be concerned that their core business of placing ‘work seekers’ with end clients may bring them within the scope of the MSC and TAAR legislation.

Managed Service Companies

In its guidance notes it makes the following comments on MSC’s

“Neither Chapter 9 ITEPA, nor section 688A ITEPA, actually applies to Agencies carrying on their core business. There are specific exclusions in both sets of legislation for such businesses. Nor will the legislation be applied to Agencies which undertake services which are merely ancillary to the core business.

However, be aware of the following as if an Agency is:

  • Demonstrably carrying on a business of providing structures (companies or partnerships) through which workers provide their services, and provides services to those structures to the extent that they would be considered to be “involved” as described in section 61B(2), then that Agency would be an MSC Provider; or
  • Demonstrably acting in concert with a person who is an MSC Provider for the purposes of securing that an individual’s services are provided by a company, then that Agency would be an associate of an MSC (but see preferred supplier list question below); or
  • Demonstrably encouraging an individual to operate through an MSC and/or beyond the mere placing of the worker’s company with end clients and functions directly linked to such placing, or is otherwise actively involved in the MSC’s provision of the worker’s services, then that Agency would potentially render itself liable for the transfer of any PAYE/NICs debt of the MSC.”

The Think Accounting and New Wave case altered the MSC landscape, as therefore as a responsible, MD of an Agency , you should ask yourself the following three questions.

Question 1. So does the above legislation (MSC and TAAR) preclude the Employment Agencies and Businesses operating preferred supplier lists?

Question 2. What are the indicators a service provider may be an MSC provider?

Question 3. What can I realsitically tell a work seeker – where the Work seeker already operates through an existing PSC company or is intending to use that structure?

Question 1. PSL’s good idea or not

  • So does the above legislation preclude the Employment Agencies and Businesses operating preferred supplier lists? Answer  The referral of work seekers to preferred suppliers does potentially increase an Agency’s risk in terms of transfer of debt.
  • However, HMRC does not wish to discourage the use of “preferred supplier lists” as it recognises that these have a legitimate cost saving function.

Where HMRC may become interested, however, is in the forced use of a particular service provider or a particular structure – be it PSC, umbrella or Sole Trader on a work-seeker. i.e. it is a limited company through X Limited or we can’t give you work”………. Let’s hope then that the preferred Supplier is not found to be a MSC provider then………..

The guidance notes goes on to say, “In determining whether referral by an Agency of a work seeker to a preferred supplier might constitute encouragement, HMRC will consider all of the facts relating to that referral to establish whether the underlying motive was that of encouraging the work seeker into an MSC. For example, HMRC would consider whether the Employment Agency had taken reasonable steps to satisfy itself regarding the status of the provider (subject to the fact that limited information is available to an Agency.)”

To help Agencies decide whether a preferred supplier may be an MSC Provider, HMRC has produced “Indicators of whether a service provider may be an MSC provider”.

Question 2. ‘MSC provider’ or ‘Accountant’?

The following questions, again detailed in the MSC guidance notes, though the answers may not be necessarily, transparent with your dealings with the Service Provider, are for the Agencies to consider but include the following:

  • Does the service provider interpose themselves between the individual/company and the recruitment Business in any other way whatsoever i.e. provide a legal service to act on behalf of the work seeker in times of dispute?
  • Does the service provider only support service company clients?
  • Is the individual work seeker unable to change service provider and retain their company i.e. does the service provider have a large release fee for information or a de-archiving fee for newly appointed advisors?
  • Do all of the companies the service provider supports have a unique identifier? (e.g. John Smith 125 Ltd, Pete Brown 125 Ltd.)

If the answer to any of the above questions is “yes”, the service provider may be an MSC provider and therefore one to avoid using.

Question 3. What can I ask/tell a work seeker – where the Work seeker already operates through a PSC company or is intending to use that structure?”

The MSC guidance notes are pretty explicit in how you should deal with your work seekers or Agency workers.

  • Does the Agency need to establish whether the Agency worker’s company is an MSC or PSC? Answer: No. If the work seeker approaches an Agency and already operates through a company, then there is no need to ask any questions as to the nature of the company. (The mere engagement of an MSC would not in itself render you potentially liable to the MSC’s debts.)
  • If I know, or I am told by the worker, that their company is an MSC, can I still arrange work for the work seeker? Answer: Yes. Provided that you are merely contracting with an existing company and not one through which you have encouraged the work seeker to operate.
  • Can I explain to a work seeker that different pay rates apply depending on whether they work through a limited company, direct through the Employment Business etc?  Answer. An Agency can provide factual information only without commenting on the merits or otherwise of a particular payment model. It should point out that each payment model has different tax, National Insurance and contributory benefit implications. If the work seeker needs more information, they should seek independent advice.
  • Can I explain to a work seeker that a particular end client will only engage work seekers operating through limited companies? Answer: An Agency can provide factual information only. If certain clients will only engage workers operating through companies, provided that those end clients are relevant to the work the work seeker is seeking, then such a statement would be the provision of factual information.
  • Can I advise a work seeker that a particular type of engagement model would make them more “saleable” in the market place? Answer: This is not advisable, as it may well stray beyond the provision of factual information. It is acceptable to set out the various engagement models and the different pay rates relating to them. But an Agency should point out that each payment model has different tax, National Insurance and contributory benefit implications. If the work seeker needs more information, they should seek independent advice.
  • If a work seeker asks what the best engagement model is, can I tell them? Answer: No
  • If a work seeker asks how they arrange to work through a limited company, what can I tell them? Answer: An Agency can refer them to a preferred supplier or preferred supplier list but this by its nature carries some risk if the preferred supplier is an MSC provider. See list of high level indicators as a way of mitigating this risk in question two above.”

As it is ten years since the MSC legislation was introduced, how does your business fare in answering the three main questions above?

It might pay to sit up and take note because  in our opinion, HMRC is a wounded animal, following the Chancellor’s recent dramatic U-Turn on NIC for the self-employed. Additionally, since HMRC does have powerful transfer of debt provisions for those caught using Managed Service Companies, who are found to be involved in their clients’ business affairs, a hefty tax bill might ruin your bonus chances in 2018.

In summary, you should be careful of which “accountants” you use on your PSL’s, checking regularly that they are not MSC’s providers involved in the provision of artificially contrived schemes for company administration, when both the Agency and the work-seekers thought they were using a safe PSC, instead they were intrinsically linked to a MSC provider. Finally, you should perform a satisfactory level of due diligence and understand the compliance of the structures your work-seeker uses.

A solution to the problem of dealing with non-compliant driving PSC’s. 

The TAAR 2014 (Targetted Anti – Avoidance Rules) , were brought into stop intermediaries manipulating the Agencies legislation and setting up their employees as ‘false-employment’ private service companies. Too many workers in the logistics sector were taken ‘off-payroll’ by setting up thousands of small limited companies and therefore avoid paying billions of pounds of NIC. 

However, anyone who has run a small limited company will testify – ” it ain’t plain sailing”….. often small businesses fail as a result of poor management decisions leading to adverse cash flows. 

Today’s blog will assist the manager of the agency worker in choosing the right calibre of  compliant workforce. There are  four  key points to make.

1. Choose your Agency Workforce from the widest net possible, performing basic due diligence on the work experiences and how they have structured their business affairs. Ask to see their “day-book” or “diaries” as the higher calibre drivers will record must important events of a days work in a journal. 

2. Don’t be tied down with your accountancy and payroll providers on your PSL. Often larger accountants put quantity over quality. Smaller accountants, who understand the logistics business invariably have smarter, higher calibre drivers on their books.

3.  Engage only 100% compliant drivers. Okay. So what is a 100% compliant driver? 

A) Holds upto date Driver CPC;

b) Operates through a limited company with no taxation or filing liabilities;  

c) Uses a limited company bank account, which is controlled by the driver;

d) Operates a PAYE scheme correctly, and understands whether IR35 applies to a contract through an Agency; 

e) Is trading in a fit and proper manner with Public Liability Insurance in place; and

f) Has full control of the company’s affairs….. ie the Driver decides for whom they work for and how much is received. 

4. Remember the maxim. It is always about the drivers…drivers….. drivers.  Protect them and look after their interests. A good agency driver will is worth his weight in gold and probably fewer headaches than a poorer agency driver. 

We are currently rolling out the DriverPlus Assured Driver Kite-mark scheme. -All of our clients are quality, independent driver PSC’s and to be inducted into the scheme not only demonstrates an outstanding level of professionalism but also a very high degree of compliance, and will certainly make great Agency driver’s for your agency. 

A sensible approach to driver PSC’s

The attacks on PSC’s, by a government intent on removing them from the flexible workplace, has been at times brutal. Relentless waves of legislation have cleverly cocked a snoop at the unscrupulous ‘accountants’ who have exploited loopholes in the U.K. Tax system.

Firstly, with the introduction of the Dividend Tax in April 2016, removing the NIC avoidance, secondly with the proposed introduction of the Low Cost Trader rules to target the abusive use of the Flat Rate VAT scheme.  Finally, the pincer movement will be completed when Chapter 10 of the Income Taxes (Earnings and Pensions Act) 2003 is extended to cover private sector organisations, probably at some time in 2019, thus levelling the playing field between employed and the self-employed in terms of income taxes.

The spectre of IR35 has been lurking around for some time now and will finally become a reality in the private sector when determination of a PSC’s work status is taken out their hands and passed up the supply chain to the agency.

So what does all this mean for the genuine freelance HGV Driver using a PSC?

Remuneration & Dividends

Following the introduction of the Dividends Tax in  April 2016, the old method of extracting money from a PSC of using a low PAYE salary, topped up by Directors’ loan account expense payments and a large dividend is not advisable, leading to increased antagonism from HMRC.

A fairer and better solution might be to increase the amount paid under your PAYE scheme to roughly half of your invoiced income, retaining a modest amount of expenses and paying a smaller dividend. This at least meets the HMRC more than half way towards full IR35 and gives the PSC and opportunity to offset its genuine costs of being a freelancer, such as claiming home to temporary workplace travel costs,  bona fide subsistence allowances, and other business costs like accountancy, work-related office expenses and insurance costs.

VAT

In the short-term, nothing much will change. The Drivers who are ‘pure Labour Providers’ will lose the benefit of the Flat Rate Surplus and so will lose approximately 5% of their gross income.

Drivers who are currently using the 10% ‘Freight Transport by Road’ category are being advised by HMRC to migrate from this, on to the 12% ‘Business Services: not listed elsewhere’ category, provided that they do not meet the Low Cost Trader category i.e. their ‘relevant expenditure’ exceeds £1,000 per annum.

Some will migrate off the Flat Rate Vat scheme onto Standard VAT accounting, recovering a small amount of purchase VAT. Others will choose to come out of VAT in its entirety. A mass de-registration will not occur, however, as inertia and a wait-and-see attitude will probably prevail, as there are restrictions placed in VAT law about chopping and changing between VAT schemes and registration.

IR35

The spectre of IR35 in the private sector is another kettle of fish, and needs to be treated with the utmost respect. Every driver will need a viable business plan, setting out their business goals and is a roadmap to successfully navigating the present choppy waters.

The only feasible solution is to diversify a Driver’s PSC into something a little more subtle and genuine than a mere driving machine. During the last major credit crunch, I advocated that people should have at least two revenue streams – a paid Full-time job and a secondary part-time way of earning supplementary income. The advances in technology since 2010 have been astonishing and have now opened up the “new gig economy” participation in which has become a new necessity. Since HGV drivers are naturally transient types, they are well suited to exploiting the opportunities that are presenting themselves; be it in parcel delivery and collection, upselling items in EBay or just doing the odd job here and there.

As there is no right or wrong way of operating a true freelance PSC, general guidance should be followed, namely using a limited company bank account, where the PSC is in control of the bank account, procuring a sensible level of public liability insurance, and carrying on the business on as a proper freelancer, on an interim basis i.e. as a hired  driving services professional that is not at the same agency continually month in, month out, year in, year out.

With all business risks, there needs to be some rewards, that will come in the form of a greater degree of flexibility, a better working environment and improved rates of pay.

In summary then, the future of the UK’s flexible logistics workforce has been jeopardised by the sham accountants who have seen the merit of setting up a limited company for a traffic warden in Preston, or a warehouseman in Doncaster, over a genuinely hard-working HGV Driver – who has professional competences and a highly regulated workplace.

At this present time, there is no reason to abandon your PSC in favour of going “cards in”.  Some good will surely come out of the current and future changes…. though as with all medicinal cures, it might leave a slight bittersweet taste but should make you better.

Neil Hooton is a Chartered Accountant specialising in the UK logistics industry.

Is it time for a new Agency model for the logistics industry?

The current buzzwords in HR circles are “CrowdSourced workforce” and “millennial mobilettes”. What are they on about and can they be applied to the UK logistics industry? 

Crowd-Sourcing is a term used to describe a supply chain which is assembled in response to a specific demand, predominantly from within a digital platform…..

Millennial Mobilettes  are the younger, more digitally adapted strata of the workforce, who rely entirely on their mobile phones in order to function and operate…..

How can these two phenomena interact within the UK logistics industry? 

A little bit of background is needed here in order to answer this question.

The UK logistics industry is very hierarchical. The top strata is inhabited by the very large logistics national groups e.g. DHL, XPO, Wincanton etc. They dominate the industry and the way that business is conducted. Predominantly drivers retained by their companies under PAYE arrangements or to coin and old phrase- ‘cards in’. The next strata down is a host of large regional players, again staffed by a rigid workforce under PAYE. Both sets of hauliers are supported by agency workers provided by the  ‘national’ recruitment firms who have large Driving divisions… Staffline, 24-7,  ADR Network and Transline. The Agencies are in turn supported by large accountancy representing thousands of independent HGV limited companies and the same accountancy companies operating Umbrella/payroll bureaux to employ the remaining agency drivers. 

However, technology will soon render this model as obsolete. Why? Becasuse technology will compensate for the skill set of the Agency and changes in workplace modus operandi I.e. Making Tax Digital and the IR35 reforms will drive the larger accountancy firms out of the picture….. it can all be done on a mobile phone….. sourcing work and the subsequent accounting for it. 

The real investment for the savvy Agency and accountant will be to embrace the new technology and develop Apps which will break the current supply chain before technology turns them into the Betamax of the recruitment world….. watch this space……

Is it time to rip up the PSL’s when looking for accountancy solutions in the logistics sector?

With all of the changes that are facing PSC’s (and in particular small limited companies), it might be time to take a long hard look at your ‘Preferred Supplier List’ or PSL when choosing an accountancy solution for your Agency “workforce”. 
Well here are three reasons why not use a “PSL” when introducing your limited company Agency HGV drivers to umbrella and accounting suppliers: 
1. HMRC are targeting the larger accounting and umbrella companies who peddle aggressive tax avoidance schemes. Under Claw-back provisions, If the third-party provider of accountancy services is found to be a Managed Service Company.. then claw-back of potential lost revenue can be forced upon the Agency by HMRC…. this is often overlooked in the PQQ stage.

2. A PSL narrows done the quality and replaces it with price….often at the expense of good service delivery….. this is obviously not the best idea for protecting your principal asset – the HGV Driver……….why would you place the welfare of your most important revenue generating assets with organisations that don’t care about the Drivers and put the pursuit of profit first and foremost????

3. By overlooking smaller accountancy firms and reducing the field to a hand-full of overhead burdened, monolithic, sales led accounting organisations, where your assets are dealt with by quite junior and often inexperienced book-keepers (at best), you really run the risk of eventually losing your better HGV drivers…..

Affirm Accountancy prides itself on providing high-quality, independent accounting services to all of its HGV driver clients……. after all, if we are looking after our HGV Drivers – do you really know who is looking after your Drivers?
Please, if you are serious about resting your better drivers, and you want to retain these Drivers – you should ask the current incumbents of your PSL the following key questions often omitted from a PQQ: 
A) If they are holding Drivers’ monies, what do they do with the interest generated on the client account? 

B) how much money has been returned to drivers who have moved on? 

C) Do they control the bank accounts of the Drivers’ limited company in a composite linked system of bank accounts?
If the answers to the above questions are – “yes: we generate a small amount of interest, and although every driver might be entitled to a portion of this interest seldom do we actually credit any Driver with any interest we hold for him or her” or for b) so If it is “no we never return a driver any of his monies as it is often swallowed up by charges and fees”, and finally, for c) “yes we pay the drivers’ weekly monies into a limited company bank account bearing the company name (but it is agreed the Driver does not have access to this account)….” 
……Then there is a very high chance you are using a Managed Service Company……under guidance note HMRC ESM 3515 to 3520.  
https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm3515 
There is a genuine possibility that under the transfer of debt provisions, as the last man standing – you the agency, could pick up the tab for the HMRC’s potentially lost revenue……..so the answer is to use professionally vetted, independent HGV drivers who know the rules of engagement, (and have their own limited company bank accounts, for which only they can control and public liability insurance, again in their own company name; as opposed to spoon fed, zombies who don’t have a clue about their current working arrangements and know even less about what is happening with their accounting.
Then there is always the “spare tyre” concept- why do you carry a spare tyre in the boot when I have four perfectly goods ones on my PSL….. well precisely……
If you want to discuss any aspect of this blog with us, feel free to call us on 01204 573555, we care passionately about the welfare of every one of our Driver clients…. they could easily be yours too!!! 
Neil Hooton

Affirm Accountancy Services Limited

Business risk for the HGV Driver

Everyday, we get asked by HGV Drivers, “Am I safe from IR35?”. Well the answer is, “It depends”……… Basically there is no right and wrong answer here, however our interpretation is that, so long as the HGV Driver is actively engaged in running a legitimate, independent, compliant limited company and actively assesses the risks involved in running that company, then he or she is likely to pass any threshold of trading test imposed by HMRC……… That said, one size does not fit all and every HGV Driver’s circumstances are likely to be different………..

So we are left with exploring factors of commonality, which all HGV Driver’s exhibit.

  1. Quality Standards – All HGV drivers must undertake a rigorous Class 1 or Class 2 driving examination, supervised by the DVSA. This test separates those who can legally drive a HGV lorry and those who can’t. This exclusivity in itself, costs in excess of £1,000 to achieve, with some drivers paying a lot more, if they are unlucky enough to fail. I have personal experience of two drivers who have recently taken their Class 1 test. Both drivers were Class 2 drivers and both wanted to become Class 1.  Both drivers paid circa £1,000 for a few days of training and and then to take their tests. The results were mixed with one driver passing and the other driver failing. For one driver, the joy of becoming a Class 1 driver, and the other a bill for £1,000 and the same status. The point I am making here is that there is financial risk involved in every aspect of HGV Driving……..
  2. CPC – All HGV drivers must undertake 35 hours of Driver CPC (“Certificate of Professional Competence”) during a five year cycle. This qualification is not a “gimme” and there are instances where drivers who have not kept up their CPC requirements are effectively banned from driving their lorries. Quite a risk I would say……..It costs money to obtain a valid CPC card, again prima facie evidence of the driver managing the financial risk he or she faces.
  3. Holding Public Liability Insurance. This is a must for every driver who operates a “labour-only” limited company. It not only protects the Public from liability issues caused by the Driver, but it also demonstrates that the Driver recognises the risks involved in driving a lorry, but is actively mitigating those risks……
  4. Working with agencies: the driver is often outside of the Agency Worker’s Directive and is therefore NOT classed as an employee of agency. This is for me the key reason why operating a legitimate, independent, compliant  limited company outside of the AWR rules is evidence of trading and undertaking financial risks. If a Drivers is outside of AWR, he or she is not entitled to sick pay from the Agency nor other Statutory payments. The HGV Driver must make his or her own sick pay insurance arrangements, again demonstrating the HGV Driver is aware of the financial risks involved.
  5. Getting paid from Agencies. Again, it a fact of life that some Agencies unscrupulously engage contractors and then look for every reason “under the sun” not to pay the Driver for his or her work. This is often managed by reference to the Employment Agencies Act 1973 (as amended by The Conduct of Employment Agencies and Employment Businesses Regulations 2003) which protects the driver from non-payments for work supported by timesheets. It is therefore the responsibility of the Driver that he or she accurately records the work performed in order to ensure getting paid, but this might incur legal costs if challenged by the Agency. Therefore, the Driver, though protected from statute must actively manage this risk………
  6. Getting paid from direct companies. Again, it is inevitable that some companies are unwilling to pay a contractor their payments for work done often if there is a problem with the standard of their work. As they are working outside of the protection afforded by the Employment Agencies Act, it is often down to at best to written terms and conditions and at worse a verbal agreement. Such a financial risk can only be managed by the Driver.
  7. As most HGV Driver’s who work for either agencies or direct with companies often have periods of no work, especially in the January and February months or between assignments, again this is evidence of a driver managing  and experiencing the financial risks of operating a limited company.

There is are also a raft of other guidance on the HMRC website

“Running a business

You’re probably self-employed if you:

  • run your business for yourself and take responsibility for its success or failure
  • have several customers at the same time
  • can decide how, where and when you do your work
  • can hire other people at your own expense to help you or to do the work for you
  • provide the main items of equipment to do your work
  • are responsible for finishing any unsatisfactory work in your own time
  • charge an agreed fixed price for your work
  • sell goods or services to make a profit (including through websites or apps)

Many of these also apply if you own a limited company but you’re not classed as self-employed by HMRC. Instead you’re both an owner and employee of your company.”

 

Therefore, it is arguable on many pretexts that a HGV driver, who sells his labour, will be able to demonstrate that he or she is actively engaged in running a legitimate, independent, compliant limited company and actively assesses the risks involved in running that company.

Neil Hooton

 

The ghost of IR35

“Professional advisers and the main industry association have collectively failed the HGV agency driver…..”

Professional advisers and the main industry association have collectively failed the HGV agency driver by not defending them stoutly enough in past IR35 claims by HMRC. By embracing a weak and ineffectual taxation regime, the so called experts are currently encouraging HMRC’s attempts to compare HGV Driver’s with IT, media and public sector workers. Throwing the HGV Agency driver to the wolves is not the response that is required from the RHA, who should be actively promoting this valuable resource.
IR35 is underpinned by a huge number of tax tribunal cases and case law precedents, because it is a fundamentally flawed piece of legislation. It tries to lasso contractors from all sorts of professional backgrounds and apply a standard set of ambiguous rules, tests and benchmarks.
I personally believe that drivers are fundamentally outside of IR35 and SDC, as they are merely obligated to drive their lorries and the delivery of their service can only be performed by themselves (unless the boss of the hirer or agency is sat beside them helping the Driver to change gear or telling them to turn left at the next set of traffic lights!!). Nearly all drivers can pick their routes, the timing of gear changes and even when they stop for their mandatory rest periods.
Many driver’s choose to work for Agencies as employees of owner-managed small limited companies, on effectively, not much more than the new Living wage. They are often contractors by choice, embracing the flexibility that self-employment brings over any perceived taxation advantages.
The HGV driver has professional status because he or she can only work in this highly regulated industry courtesy of investing in passing the DVSA class 1 or Class 2 test, holding a Certificate of Competence, which requires a wide knowledge of UK tacho laws, EU directives, loading and fastening techniques, a working mechanical knowledge and not to mention actually driving safely a highly expensive, technical piece of plant and machinery.
I understand that a large contract, with some 500 agency workers, performing driving services, was found to be inside the IR35 rules by HMRC, because they had “to call in the office (up to 15 times a day)” and other failures such as staying under the same contract for over two years, and so therefore found to be under the direction and supervision of the hirer, in a “disguised employment” situation.

“With the modern tracking technology, which has been available since before the onset of IR35 in 2000, how does it make any difference if a driver calls in the office one or a hundred times, as the operations manager knows where the asset is, often to the nearest metre.”

Often, such methods of communication are a throw-back to the old days of trucking with the traditional game of cat and mouse between the transport manager and driver.

The HGV driver’s similarity with the aforementioned Professional worker’s ends with the fact that they are contractors, often sub-contractors to sub-contractors. As IR35 was originally set up to counter the “leave on Friday and start on a Monday” contractor, it is hard to see why this should worry the HGV lorry driver at all.

After all, all DriverPlus driver’s are HMRC compliant – as they all operate as a business in your own rights, pay the correct amount of tax on time,  however that said the HMRC’s continued interest in IR35 is both worrying and challenging, and should be a cause of concern for the driver, but if managed properly should not be cause if blind panic. Over-complacency should be guarded against, as all HGV drivers need to be on the ball – by querying work which could fall inside IR35 or if they accept a contract where there is a heavy amount of supervision and direction from the hirer, be prepared to ask for a higher rate of pay and consequently pay a higher amount of tax on this contract.

However, over the coming months we at DriverPlus will be re-assessing each driver’s modus operandi, in anticipation of any future rule changes from HMRC. Watch this space.

Neil Hooton

July 2016