Posted on 22nd Oct, 2019 by Charlotte Coop
Plenty of businesses make good use of temporary drivers, especially in the run up to and just around the Christmas period. However, this year looks to be the last time it’ll be quite that cost effective to do so, as the government is shortly updating its IR35 rules to apply to the private sector. Due to come into force by the spring of 2020, the updates mean that companies with more than 50 employees and an annual turnover of more than £10.2 million will be legally required by HMRC to assess the employment status of any contractor they use.
This will likely result in the cost of hiring temporary drivers to rise by 20% for many businesses, and estimated to be up to 30% for some. So what’s behind the latest updates, and can you sidestep the costs?
IR35 is a term used to describe two closely related sets of tax legislation, both of which are designed by HMRC to crack down on tax avoidance – whether from contractors and workers themselves, or the firms hiring them.
It was introduced by the government as a response to what’s officially described as ‘deemed employment’. It refers to the practice of some companies to deliberately hire workers on a self-employed basis rather than as full-time employees, thereby saving themselves on the taxes that the latter would incur. HMRC regards such workers as disguised employees, or deemed employees, and the consequences can be very expensive for any companies caught doing it – whether deliberately or through an oversight.
The IR35 is far from new – it’s been around in some form since April 2000, but it’s faced its fair share of criticism from tax experts, who argue that it’s been poorly implemented. So, the government is replacing the original IR35 with an updated version, referred to as the Off-Payroll tax. It’s already been applied to the public sector since April 2017, and will apply to the private sector from April 2020.
The new rules will emphasise the responsibilities on employers to assess the status of contractors, and crucially, make sure they’re paying employment taxes to HMRC on top of the fees paid to the contractor. Haulage experts expect that maintaining driver pay (including agency margins), and National Insurance contributions will all raise the cost of temporary drivers by about 20%, and possibly as much as 30% for ‘large-volume’ contracts.
Only if it genuinely doesn’t apply to them. Otherwise, the best that companies can do is make sure they’re aware of the stringent guidelines imposed by the latest IR35 legislation, and that they’re abiding by them. Some businesses may choose to re-hire all contractors on fixed-term employment contracts – which means hiring them as if the IR35 applies, and pay all extra employment taxes involved. This is likely to be expensive, but unavoidable for certain businesses, especially if they plan to use agency drivers to cover the busier periods next year.
Ultimately, we’ll leave the decisions about tax matters in your hands. What you can expect from us here at Vision Techniques, though, is a fantastic range of vehicle safety equipment to make sure that when your drivers are in their HGVs, they enjoy maximum safety for both themselves, and other road users. Our landmark StopSafe and Brakesafe technologies are both popular choices for many fleet managers, but we also have a brilliant range of vehicle cameras too. And if you have any questions or need any advice, our friendly sales team is here to help – just give us a call on 0845 643 337, and we’ll be happy to help however we can!