Following HMRC’s concerns that haulage operators were wrongly treating workers as self-employed or hiring workers through their own companies in ways that did not comply with tax laws, the First-Tier Tribunal (Tax) considered the employment status of drivers.
It is now well understood that it will be rare for someone to be genuinely self-employed, unless they are an owner-driver.
How are self-employed and limited company drivers defined?
HMRC has issued detailed guidance on employment status and has published a tool to help determine a worker’s employment status for tax purposes.
Transport providers cannot claim a commercial advantage by claiming that labour-only drivers are not employees, just because they are engaged on a job-by-job basis with no guarantee of future work.
The contract for each engagement may well amount to a contract of employment and that the regularity of work done may indicate that there is a continuous contract.
The Upper Tribunal has held that the legitimacy of a driver’s employment status may be fact specific.
For example, the use of a conduit company to pay drivers does not automatically mean that those drivers are not employees. A number of factors must be considered and, where a driver is found to be a de facto employee, then the company will be liable for their conduct.
The Upper Tribunal has also reviewed the tax and employment position of goods drivers. In that case, the employment clauses suggesting that the drivers had a degree of control were undermined by the reality and as described in the Driver Handbook.
The Upper Tribunal raised concern that the arrangement was highly questionable, if not a sham, as the company and transport manager had abdicated their responsibilities for ensuring that the transport operation was compliant and safe, in order to save money.
The test for self-employment was set out in the case of Ready Mix Concrete and involves three key hurdles:
- Is the worker subject to a right of control?
- Does the service have to be provided by that individual?
- Are the other factors present consistent with a contract of service?
In general, someone is self-employed if they are in business on their own account and bear the responsibility for the success or failure of that business. Conversely, they will be employed if they personally work under the control of their engager and do not run the risks of having a business themselves.
What are operators expected to do?
Where a traffic commissioner encounters driver engagement, which does not appear to meet the prevailing tax requirements, they will consider the impact on fair competition.
In the first instance, they might consider allowing opportunity for the operator to ensure that relevant drivers comply with the HMRC guidance on employment.
This could involve an undertaking that by a specific the date the operator will ensure compliance.
However, as time goes on, operators will be expected to understand the rules and the Traffic Commissioners may adopt a less relaxed approach.
In a recent case, a Wiltshire haulage firm had its licence revoked after an investigation found the vast majority of its drivers were employed through a limited company.
The TC stated that “the driver is the servant of their own limited company. It is their limited company that pays them and gives them their directions.
“The arrangement … was that it sub-contracted … work to a number of limited companies. Those limited companies then employed the driver.”
This arrangement has been criticised by HMRC for giving operators an unfair commercial advantage, as they avoid paying national insurance and pension contributions. It can also enable professional drivers to avoid their own tax liabilities.
It is therefore important to either employ your drivers or receive written employment advice from an expert confirming that your drivers are genuinely self-employed.
The third route, with drivers working through their own umbrella company, is no longer possible, unless of course the driver’s company, itself, holds an operator’s licence.
But, of course, in this scenario, it is the driver’s company that would be operating the vehicle.
Contact Jared Dunbar for support in Public Inquiries or Transport Law related matters.