The Off-payroll legislation was rolled out into the private sector in 2021 and has turned contracting on its head. For the HGV industry, it has meant that fleet managers and hirers have become responsible for assessing the employment status of their freelance drivers. Many firms chose to blanket ban drivers from working through their own limited companies which saw many of them nudged into working through umbrella companies for the first time.
One effect of the legislation was a rise in the number of companies entering the market purporting to be umbrella companies but are tax avoidance and disguised remuneration schemes duping unwitting drivers into signing up with them with the promise of more take-home pay. It is therefore very important that drivers and hirers conduct their due diligence to ensure that they are working with compliant accredited umbrella providers.
Crawford Temple is CEO of Professional Passport, the UK’s largest independent assessor of payment intermediary compliance and he spells out what drivers and hirers need to be alert to.
What does a compliant umbrella offer?
A compliant umbrella will offer drivers:
- Employment rights, including all statutory rights and benefits such as holiday pay, maternity, paternity, sick leave, pension etc
- Employment history whilst working on a contingent basis (useful for access to finance, housing/mortgages, etc.)
- Joined up pay from fragmented working:
- Many drivers will perform multiple assignments
- Umbrellas consolidate their workers’ earnings and ensure appropriate taxes are paid
- Peace of mind that tax is paid appropriately, with no need to submit an annual self-assessment return to HMRC
- Employee/HR support, in the unlikely event that an individual needs HR advice, such as a grievance case, as their employer the umbrella firm will have processes to support them
Advice for contracting drivers
Faced with the IR35 changes, some drivers might be tempted to sign up for one of the many schemes that have popped up promising higher take-home pay. The schemes “work” by paying a small portion of the driver’s earnings via PAYE and disguising the remaining larger part of the income as something else, often in the form of a loan. This is often paid through a separate payment.
These schemes are illegal and anyone signing up to such a disguised remuneration scheme puts themselves at significant personal financial risk.
If a driver is taking home significantly more from one provider than the general returns offered by the market, they are clearly signed up to a disguised remuneration scheme. Some might opt for such a provider believing there is little chance of being caught but be warned.
Drivers should follow these 5 steps to stay safe:
- Contact HMRC for a Personal Tax Account
Sign up for a Personal Tax Account with HMRC. This is a simple online process: https://www.gov.uk/personal-tax-account.
With a Personal Tax Account, drivers can check that the earnings reported on their payslips are the same as those reported to HMRC, as the information is regularly updated following Real Time Information (RTI) submissions.
- Check payslip information
Check the payslip. If a payment is showing more than 80% of what is due then that should raise alarm bells.
- Check deductions
Check any deductions being made as company deductions by the umbrella. If anything seems strange or too high, have it checked. If there is a line for a loan, or advance deduction, ask questions.
If a driver is receiving their pay over 2 payments for the same period, then this is not lawful. Generally, the first payment will be applied at National Minimum Wage and taxed through PAYE and the second will have no tax applied and could be called a variety of names such as an advance or a loan.
- Check the bottom line
Check the bottom line. The total received, less the company deductions, should flow down to equate to the total gross taxable income on the payslip element of the report.
Each contractor has their own tax and NI deducted, and possibly any pension contributions being made. This will show the take-home pay that will be paid into the assigned bank account.
If the amount received into that account is different, usually more than shown on the payslip, it is likely a contractor is in a disguised remuneration scheme.
- Get a paper payslip
Professional Passport is seeing increasing instances where payslips are not available to employees and workers receive text notifications outlining their pay. A text message is not a payslip and receiving a payslip is a legal requirement. Text messages are often used when concealing the true nature of the income being reported. A Personal Tax Account will highlight any discrepancies.
If the text messages refer to loans, advances or other terms not generally associated with employee payments, and the amount shown on the payslip is different to the amount received, a contractor is likely in a disguised remuneration scheme.
Advice for fleet and transport managers hiring drivers
Faced with a proliferation of non-compliant schemes, transport managers must get to know their partners throughout the supply chain and take steps to know that their recruitment partners and the umbrella firms that they work with are operating to the most robust compliant standards that will stand up to rigorous interrogation and investigation.
There are several steps to take to check the credibility and compliance of other parties in the supply chain and you can add specific requirements to your contracts with your recruiters so that you secure assurances and reassurances.
You can start by checking out your recruiters. Are they in a good financial position? At the very least you should be running a credit check, and you should also investigate their accounts – if independently audited then you can feel reassured that the figures are true. You should also check for issues such as conflicting business interests, previously failed businesses, financial difficulties and offshore connections.
You will also want to check their contracts, insurances and levels of cover. Ask to see a copy of their insurance certificates, VAT certificates and certificate of incorporation. You are trusting your partners with large sums of money, so you will need to be assured that they are genuine and have appropriate cover in place.
Once you are happy with the agency you can place obligations on the payment intermediaries they can use, in the case of umbrella providers you can insist they only use an accredited provider. This helps limit the risks of disguised remuneration schemes entering your supply chain. Also, ask them to confirm the names of the intermediaries they work with currently and check on their accreditations. If you see a particular provider appearing frequently for no apparent reason this should raise a flag and you can ask your agencies to run a due diligence check which should include obtaining copies of payslips from drivers and copies of bank statements showing those payments coming in.
Ignorance is no defence
Disguised remuneration schemes have been well documented and publicised throughout the supply chain and HMRC is likely to use all its powers to penalise those individuals identified who are using these schemes. Once caught, offenders will end up paying more than if they had paid the correct tax in the first place.
The message is clear. If you suspect something is not right: Challenge It – Get Out of It – Report It
