In recent years, the UK government has made some serious changes to tax laws. While taxes were never too simple to understand in the first place, legislation known as IR35 appears to be causing some people to scratch their heads.
IR35 is the name of a law that will generally apply to contractors.
While it was rolled out in 2000, further changes to contractor tax laws could end up making things more confusing for certain people paying income tax in the UK. The rules themselves about what constitutes IR35 are not actually changing, but the liability of determining IR35 is being passed to private sector employers and has made some companies very nervous.
In fact, IR35 has received a fair amount of criticism over the years! But how does IR35 stand to affect HGV drivers – and how exactly does it impact contractors and limited company workers in general? Read on to find out more.
What is IR35?
IR35 is a piece of legislation set up to clamp down on tax avoidance. HM Revenue and Customs brought in the law to ensure that any contractors working as employees, but while still running limited companies, would need to pay specific rates and fees.
A simple way to look at this is that these contractors are “disguised employees”. For example, if someone works through an intermediary or middleman on a contract or an almost-employee basis, they will need to pay taxes and national insurance as per employee rules. However, if they run a business as a limited company, they might otherwise avoid paying certain fees.
Crucially, HMRC has a series of tests and measures in place. If they feel that you are working as an employee – but are doing so with contractor and limited company benefits – you will need to pay attention to IR35. If IR35 applies to you, you are classed as being ‘inside IR35’.
Watch this video below, it explains the topic of IR35 well.
What Are the Basic Rules of IR35?
IR35 can get quite complex and long-winded, and we’re sure you’ll want us to keep things simple. So, we will! In short, HMRC needs to see that you are working purely on a contract or sole trader basis, not as an employee.
There are a few things which can help determine this.
• Are you set any basic working patterns? Does your client’s contract hold you to continue working for them exclusively? HMRC will look for anything that suggests your client has sway over you in a contract. If they do, you might be considered as an employee.
• Do you work contract by contract? Or, do you accept jobs from one client, and does your contract state you must take them out of obligation? Obligation is an important element to prove. If you are obliged to work, then HMRC is likely to assume you’re an employee and within IR35.
• Can you be substituted easily on the contract you are working on? Most employees would not be able to call their boss and tell them that they cannot come into work, but they are going to send their friends instead. However, in the case of agency HGV driving work, there are many contracts where you could be substituted by another suitably qualified driver.
• Are you paid project by project? If so, it’s unlikely IR35 will apply to you.
Effectively, HMRC wants to know whether you call the shots, or if your client does. Most of the time, they will clamp down on people working via intermediaries. It’s also worth noting that sole traders will not generally have to worry about IR35, as it shouldn’t apply them by design.
How Does IR35 Apply to HGV Drivers?
The boundaries of IR35 can appear to be blurry at times. When HMRC establishes that, without the limited company status, you may as well be working as an employee for an intermediary or client, they will assume you are within IR35.
There are plenty of rules and tests which apply. Many HGV drivers are on payroll and work directly for a company in any case. For those professionals who drive alone, and from contract to contract, it’s important to accustom themselves with the facts.
IR35 is something that’s not very well-liked – but ultimately, it’s the law. For the foreseeable future, contractors are going to need to address the checks involved so that HMRC doesn’t land them with fines in the near future.
Are You Inside or Outside IR35?
It’s worth putting together a checklist of sorts if you’re worried. As IR35 can be very broad and often entangling, it’s worth speaking to an independent tax advisor (such as an accountant) if you feel you may be within IR35. Certainly, you should not speak to HMRC directly until you are sure one way or another. At the same time, do not ignore the issue if you’re unclear – as HMRC can impose fines as well as any unpaid tax if you fail to declare taxes and contributions properly. It’s breaking the law!
Here are a few more points you can consider while reading up on IR35 – if only to help ease your mind a little!
• How separate are you from your clients and other businesses? If you’re far from their structure, you may be outside of IR35.
• Have you signed any contracts which oblige you to work? If there is any sort of obligation, you may be subject to IR35.
• Do you work for one client or several? HMRC is likely to place you under IR35 if you work exclusively for one body, regardless of other factors.
• Do you get paid from project to project, or through other schedules? If the former, you’re unlikely to fall within IR35.
• Do you run a limited company? If the answer is no, then you won’t have to worry about IR35.
Should you check your IR35 employment status?
If you drive HGVs and operate a Limited company which you invoice your clients from, it’s always worth speaking to an independent tax advisor if you’re concerned. However, providing you diversify your contracts, work to limited contract obligations and are paid from job to job, you are more likely to fall outside of IR35. However, as always, it is better to be safe than sorry.
HMRC provides an online tool, Check Tax Employment Status (CEST) which can be used to provide you with a general guide to your status. Industrial bodies (including IPSE, the Association of Independent Professionals, and the Self-Employed), however, believe it is not yet fit for purpose., so contractors, recruitment agencies and end-clients should not rely entirely on it when assessing the status of IR35.
Helping to demonstrate you are not a disguised employee?
As a Contractor –
As we have mentioned above, IR35 regulation is very broad and is something that applies to your roles but not you as an individual. Below are some tips to help you stay clear about the IR35 status if you are a contractor working through a limited company, whether it’s your own company or an umbrella company.
• Proof you are in business with your own company
Bear in mind that HMRC may ask for evidence to prove that you are working for yourself, not an employee of your client. Keeping orderly paperwork will assist your position there.
• Obligation to work for a particular employer
An employee may have a set working pattern such as certain hours or shift patterns. They will also have entitlements to pension, holiday pay and other work benefits. The employee also has an obligation to carry out work for an employer at certain times and locations and cannot pick and choose when they want to work. As an HGV agency driver, you may well not have any such obligation.
• Keep your correspondence as a proof
Any correspondence such as emails or statements that are clearly mention that you are not under the control of a manager at the business, you are simply contracted to offer a service; this could be useful to prove you are not an employee.
• Do not use your name as your company name
Using your own name for your company is unwise as this fit under the HMRC profile as a PSC. Consider naming your business with a separate name will distinct you from you and you can assign the work to another person if required. This helps mark you out differently to an employee, an employee does not have the right to delegate the work.
• Have your own office
Have a well-equipped office and invest in your business memberships or software licenses and any other trade literature will be very helpful too.
• Get a business insurance
Having your own business insurance is another way to demonstrate that you are running a business and not an employee.
• Try to have more than one client
It’s a good idea to have more than one client at any given time, this makes it harder for HMRC to claim you are an employee for your clients.
• Have marketing materials for your company
Own a business listing on a relevant website, running your marketing adverts or print your business cards will help to show you are in business on your own company.
• Paid for your professional training
Invest in your professional development will be a very useful point of difference as employees do not pay for their own training.
As a business or recruitment agency –
• Make sure you have a clear and accurate term of engagement
• Check and review your relationship with your contractors (in this case drivers)
• Provide a Status Determination Statement
• Consider changing contractors to employees if they fall within IR35
• Talk to your accountant and ask for help with IR35
As with many pieces of legislation, it is often not completely clear how they will be interpreted until there are test cases. However, there are many examples where people have challenged HMRC’s position and won. It is also important to remember that the rules around IR35 are not in themselves changing, just who can be held accountable.
Your agency may decide that they can no longer use your services as a Limited company, or it may be that their clients have decided that they no longer want to do the same, but if your agency continues to engage you as a Limited company and you are at all concerned, you should seek professional advice.
Disclaimer: The material and information contained in this article is provided for information purposes only, and represents the opinions taken from a range of different sources. You should not rely on this material and information as the basis for making any business, legal, financial or any other decisions. Global Employment Bureau accepts no liability for the accuracy or reliability for the information contained within.