IR35 HGV drivers, or “off-payroll working,” has become a significant topic in many UK haulage industries. HGV drivers, especially those working through agencies or limited companies, face a considerable impact from IR35. This blog explains what IR35 is, how it affects HGV drivers, and the differences between being inside or outside IR35. We will also explore recent legal changes and their implications for the HGV driver shortage, helping drivers navigate this complex tax system.
What is IR35?
IR35, also known as the “off-payroll working” rules, is a set of tax regulations designed to identify individuals who, despite working through intermediaries like limited companies, are effectively functioning as employees. The legislation aims to prevent tax avoidance by ensuring that those who would be considered employees for tax purposes pay the same taxes and National Insurance (NI) contributions as full-time employees.
When an HGV driver works through a limited company or agency, IR35 determines whether they should be taxed as self-employed or as an employee. If a driver falls inside IR35, they face higher tax rates, similar to a salaried worker, even though they may be working as a contractor.
Inside vs. Outside IR35: What’s the Difference?
Understanding the difference between being “inside” or “outside” IR35 is essential for HGV drivers.
- Inside IR35: If an HGV driver is inside IR35, they are considered an employee for tax purposes, even though they work as a contractor. This means they must pay income tax and National Insurance (NI) contributions like an employee, reducing their take-home pay.
- Outside IR35: If a driver is outside IR35, they are genuinely self-employed. This status allows them to benefit from tax efficiencies, such as claiming business expenses and potentially reducing their tax burden by paying themselves in dividends.
What Does Working Inside IR35 Mean for HGV Drivers?
Being inside IR35 has significant financial implications for HGV drivers. If classified as inside IR35, drivers lose the tax benefits of self-employment and face the same tax treatment as employees. This means paying higher income tax and National Insurance contributions, leading to a reduction in take-home pay.
How Do HGV Drivers Get Classified as Inside or Outside IR35?
Several factors determine whether an HGV driver falls inside or outside IR35:
- Control: If the transport company or agency controls when, where, and how the driver works, the driver might be inside IR35. Self-employed contractors typically have more autonomy.
- Substitution: The ability to send someone else to do the work is another key indicator. If the driver must personally carry out the work, it points to an inside IR35 classification.
- Mutuality of Obligation: If there’s an expectation of continuous work with the same company or client, this suggests an employment-like relationship, potentially placing the driver inside IR35.
- Financial Risk: Contractors working outside IR35 generally take on more financial risk. For example, they may cover their own expenses or face penalties for delays. If the driver doesn’t bear this kind of risk, it may indicate an inside IR35 situation.
The Impact of IR35 on HGV Drivers: Why It’s a Problem
The introduction of IR35 changes has made things more difficult for many HGV drivers. Before the 2021 reforms, drivers could determine their own IR35 status. However, the responsibility for deciding whether a driver is inside or outside IR35 shifted to the client (the company or agency hiring the driver) after April 2021.
This change has caused several problems:
- Loss of Tax Benefits: Drivers classified as inside IR35 lose the ability to work as self-employed contractors, meaning they can no longer take advantage of dividend payments or claim business expenses. This results in a higher tax burden.
- Uncertainty: The complexity of the rules means that many HGV drivers and their employers are unsure of their IR35 status. This uncertainty can lead to stress and financial strain for drivers.
- Cost of Compliance: With the responsibility now on the hiring agency, there are additional administrative costs to assess the status of drivers, which can reduce the number of HGV contractors employed.
The HGV Driver Shortage and IR35: A Link?
The UK is experiencing a significant shortage of HGV drivers, and IR35 has contributed to this issue. Many self-employed HGV drivers now avoid working through limited companies due to the tax implications of being inside IR35. This has reduced the pool of available drivers for transport companies and agencies, making it harder to fill vacancies.
Furthermore, the 2021 changes to IR35 have prevented large and medium-sized agencies from hiring drivers through limited companies. This has forced agencies to hire drivers on a pay-as-you-earn (PAYE) basis, increasing costs for hauliers and limiting flexibility for drivers. As a result, businesses are increasingly seeking alternative solutions, such as upskilling existing employees to become HGV drivers.
Is It Worth Being a Self-Employed HGV Driver Under IR35?
Due to the complexity of IR35 regulations, many HGV drivers are reconsidering whether self-employment remains financially viable. The main concern for those classified inside IR35 is the loss of tax efficiencies and the additional financial burden of higher taxes.
However, drivers who maintain an “outside IR35” status still benefit from self-employment, including the ability to claim expenses and work for multiple clients. The key is understanding the rules and ensuring work arrangements align with the definition of self-employment.
How HGV Drivers Can Protect Themselves from IR35 Risks
To ensure compliance with IR35 and minimize the risk of being wrongly classified as inside IR35, HGV drivers should:
- Assess Your IR35 Status: Use the HMRC CEST (Check Employment Status for Tax) tool to assess your IR35 status. If you’re uncertain, seek professional advice from an accountant or IR35 specialist.
- Review Your Contract: Ensure that your contract accurately reflects your working arrangements. If it implies control by the client or agency, it may suggest an inside IR35 situation.
- Seek Professional Advice: Consult with a tax advisor who understands IR35 to ensure your working practices and contracts align with self-employment.
- Understand the Reforms: Stay informed about changes in the IR35 regulations and how they may affect your employment status and tax obligations.
Conclusion
IR35 has added a layer of complexity for many HGV drivers, particularly those working through limited companies or agencies. The shift in responsibility for determining IR35 status to the hiring agency means drivers must be vigilant about their working arrangements and tax status. Although the regulations have made life more challenging for self-employed drivers, they also offer an opportunity for drivers to reassess their work structures and operate more tax-efficiently.
By staying informed through government’s website, reviewing contracts, and seeking professional advice, HGV drivers can navigate the IR35 landscape and continue to succeed in the UK’s haulage industry.