The HMRC false self-employment team are tasked with tracking down those who should be taxed as employees, but are not and, have announced that they are now looking at workers within the road haulage industry (RHI).
Why are HMRC targeting the Road haulage industry (RHI)?
HMRC are of the view that most drivers in the industry are caught for PAYE and see this as an opportunity to collect additional taxes. They feel that self-employment is unlikely where the driver does not provide the vehicle. The reason for this is that to be “in business on your own account” you need to be able to demonstrate that you are responsible for the success and failure of your business. Part of this is being able to demonstrate that you:
- Have the equipment required to run the business;
- Can benefit from your own efficiencies; and
- Are at financial risk if the business fails.
While the RHI is the latest to be targeted by HMRC in connection with workers being paid without operation of PAYE, there is no doubt about the direction of travel. The tax laws are being beefed up regularly to make it more difficult to avoid being subjected to PAYE.
Examples of workers that have already been targeted are:
- Sole traders working through an agent – it is just a question of whether this is the responsibility of the agent or the end client to operate PAYE.
- Workers that use umbrella companies (Managed Service Companies) – have been subjected to PAYE for a number of years and from April 2016 have significant additional restrictions on their ability to claim tax free travel expenses.
- Office holders (e.g. directors) – usually liable to PAYE (or IR35) on at least their office holder remuneration. Without specific action, all their income from the client is now caught automatically, not just the office holder income. While the tax rules changed in April 2013, HMRC will seek to recover national insurance for the earlier period as well.
- For public sector contracts – it will soon be the responsibility of the department, or intermediary agent to ensure that the correct tax treatment is applied. While these bodies have previously relied on HMRC focusing their attack on someone else, they will no doubt take a much keener interest when they become responsible for the consequences of failure to apply the rules correctly. The expected outcome is that the number of workers being paid “off-payroll” will reduce and if this is considered a success then it is difficult to see how this will not be rolled out to non-public sector workers as well.
What about everyone else?
While the new rules clearly change the game for those affected, HMRC are keen to identify those they believe should already have been subjected to PAYE and have announced that the RHI is now in their sights.
I work in this industry, but am not subject to PAYE on my earnings – what should I do?
We recommend that you review your position to ensure you are doing things right. Failure to do so could result in an expensive enquiry if you are challenged by HMRC. The nature of these enquiries is that they are time consuming and need to be undertaken by advisors with specialist knowledge and this makes them expensive, regardless of the outcome. Clearly, if HMRC are successful, the final cost could be very substantial with tax, national insurance, interest for late payment and penalties payable in addition to professional fees.
How can I protect myself from risk?
Review your contract.
There is no such thing as an “IR35-proof” contract. In all cases you need to look at the terms of the contract and determine whether on balance it looks as though this is one “of service”, or “for services”.Update the contract if required. It is important that the contract is drafted to include as many clauses as possible that demonstrate self-employment. If your contract is not indicative of self-employment, can it be improved?
Ensure that the actual role mirrors the contract.
If the contract and the reality differ, the whole contract may be disregarded and therefore be worthless in terms of defending a challenge from HMRC.
Can I send someone else to do my work?
Many contracts will include a substitution clause and in theory this should secure self-employment status. However, if the clause is never used, it is likely to be disregarded by both HMRC and the Courts. Where a substitution clause is exercised effectively, the status cannot be employment because employment requires personal service. For example, if I can send someone to undertake the duties of my contract (and I pay them for undertaking this) I have not provided personal service and I am not an employee.