The logistics of the new IR35 rules

A common misconception about the self-employed is that they fall within a specific category. Despite the fact that this never has been the case, there are certain categories of professionals who have arguably been viewed through unfairly sceptical lenses when it comes to their employment status for tax purposes.

IR35A case in point includes HGV drivers, who have been expressly categorised as those carrying out a profession under EU law for almost twenty-years (Directive 2003/59/EC). HGV drivers have to be professionally qualified, whether they are self-employed or are salaried workers. They also have to undergo periodic training, as is the case with other professionals such as solicitors or chartered surveyors – and are generally responsible for arranging their own PI insurance. It cannot be emphasised enough that there is no sense in which, as a matter of law, that HGV drivers are automatically ‘within’ IR35 or the off-payroll rules, because that is not at all the case.

What do the IR35 rules entail? In a nutshell, they place the responsibility for determining a contractor’s employment status for tax purposes onto the end-client. The end-client is obliged to issue a ‘status determination statement’ stating whether or not, but for the contract between the end-client and the driver’s limited company, the driver would nevertheless be an employee for tax purposes. In other words, it is the client that now has to make a judgment as to whether the driver in question is inside or outside the IR35 or ‘off-payroll’ rules.

Moreover, the end-client must exercise ‘reasonable care’ in so doing. If no SDS is issued, or if the client does not exercise reasonable care, then it is the end-client that is the “fee-payer” for the purposes of the law, and who is thereby on the hook for the PAYE and NI liabilities in relation to the fees paid to the driver in question.

The transportation and logistics market is heavily reliant on employment agencies. There is some diversity on the compliance standards that exist across the market as a whole. One company that prides itself on operating an ultra-compliant business model is PPF Group Ltd, a specialist provider of temporary workers to the logistics sector. Andrew Waldron, their CEO, set out the concerns of the market as a whole in a discussion that preceded this article:

“We have both PAYE drivers and self-employed drivers who operate via their own limited companies. In each case, what we do absolutely insist upon is a totally transparent and legally underwritten process for each contract. It is simply inaccurate to suppose that the vast majority of genuinely self-employed drivers are removed by the new IR35 reforms, which as a business we have welcomed. We are in fact more concerned at the advent of non-compliant umbrella models, which we take to be a far more significant risk to end-clients than the IR35 reforms”.

The reality is that, approached correctly, the IR35 reforms allow for more streamlined compliance, not less. Those agencies that have previously been successful in defending their operating models in the employment tribunal have built up a deep and necessary expertise in the intersection between the IR35 legislation and the question of ‘worker’ employment status. End-clients and agencies should beware of umbrella models that do not properly record or specify holiday pay, parity pay, and the application of the Agency Workers Regulations 2010.

The challenge for the transport and logistics industry is to locate legal technology that, together with leading employment businesses, allows the flow of labour resource to be as fluid as was enjoyed previously. It would be a shame – and indeed an unnecessary one – if compliant business models with respect to IR35 lead to an over-reliance on unregulated and non-compliant umbrella companies that provide a temporary false comfort while, by the same stroke, significantly increasing the legal risk that end-clients face. The opportunity for a clear and consistent approach to the reforms is available and is accessible. Insurance-backed compliant models that are led by experts are a sensible and necessary measure. Those in the industry should start having the conversations with experts now, so that a joined-up and collaborative approach can be taken to getting the economy back on the road post-pandemic.


Author: Michael Paulin the founder of Wolf IR35 Legal Services and a tax barrister

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