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.
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.
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.