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Off-payroll working (IR35): All you need to know

Logistics and IR35

The changes to off payroll in April this year have far reaching consequences for logistics, for recruiters and haulage firms alike.  Here we look at the changes to come and what hey mean to the industry and the way drivers are paid and taxed.

The background

The changes to off payroll are part of a clampdown by HMRC against what they call ‘disguised remuneration’.

They view disguised remuneration as contractors operating through a limited company and gaining the tax advantages of doing so while in effect being ‘employees’ of just one ‘employer’.

The reform is therefore intended to correct this ‘anomaly’ and tax contractors in the same way as regular employees.

This reform was enacted in the public sector in 2017, now it is being rolled out in the private sector as well.

Inside or out?

The reform is intended to tax the so-called ‘permietractor, not wipe contracting off the map.

Genuine contractors, those that work on specific projects for multiple end users, will be deemed to be outside of IR35 and therefore still able to operate through their PSCs.  Unless, of course, the contract is deemed to be inside IR35…..

the IR35 changes that are coming in are more focused on individual assignments rather than the person. What they are saying is you can be self-employed invoicing client A but if client B determines his assignment is in scope then you must be paid PAYE for this assignment.

Granted there are still qualifying criteria to be deemed self-employed but the focus will very much be on the status determination given by the end user.

But for those deemed inside IR35, the days of the PSC are over, they will be paid agency or umbrella PAYE, and that’s all there is to it!

What does ‘inside’ IR35 actually mean?

There are a number of determining factors to decide whether or not a contract is inside or outside of IR35.  They include the following:

SDC – supervision, direction and control.  Is the contract subject to this from the end user?

MOO—Mutuality of obligation.  Does the contract involve working for multiple, or just the one engager?

Status determination

HMRC has a tool designed to assist with determining the status of a contract called CEST.   Unfortunately, in the opinion of many, this is of limited use as it has not proven to be a reliable and could be open to challenge.

As a result, a number of companies have entered the market offering alternative status determination tools, and for many recruiters this is probably your best bet, if you don’t want to do the assessments yourself.

The responsibility for assessing the determinations will normally rest with the end user as the employer of the contractor, that’s how the legislation is framed, it isn’t a question of recruiters seeking to wriggle out of their responsibilities!

The buck stops with you, as the end user, if the determination is wrong!

Status must be determined on a contract by contract basis

Blanket determinations, where all contracts are determined collectively, might seem a tempting short cut but this is not permitted.  Each contract must be individually tested to assess its status under IR35.  It’s vital to bear in mind that it is the assignment that is being tested, not the person fulfilling the role!

However, please note there are some exceptions to which end users this applies to  – small companies with less than £10m turnover or under 50 employees are currently exempt from the legislation.

No further delays

The reform, of course, was originally scheduled for implementation last year, but the impact of Covid forced the Government to delay for a year.  But this time, despite challenges and wishful thinking that a further postponement would occur, it’s happening!

The KIDs are all right….

There is further work for agencies to do as part of their preparations, one of which is the Key Information Document (KID).

Contractors working inside IR35 under the Off-Payroll rules should expect to receive a Key Information Document (KID) from their agency at the beginning of each new contract.

Designed to deliver transparency and prevent unwitting engagement with tax avoidance schemes, KIDs are supposed to provide workers with an overview of how any fees and deductions will impact their take-home pay.

This enables contractors to make a fully informed decision regarding their next contract and shows up non-compliant tax treatment of their earnings.

Where there’s a change, there’s a scheme….

Off payroll reform is an opportunity for all manner of tax avoidance schemes to tempt contractors faced with the loss of their PSC operating method.

Posing as bona fide umbrella companies and offering enhanced rates, many contractors will be tempted by them.

Operating through a variety of methods, offering a notional salary and the rest in the form of an annuity or loan, these methods are not compliant and may well result in an HMRC investigation.

Not just the contractor, if an agency is tempted to partner with one of these tax avoidance vehicles, they are party to tax avoidance and will be chased for the tax due by HMRC.

Plus other methods, such as Mini Umbrella Companies (MUCs) have emerged which have also been deemed non compliant.

Fiddling the VAT….

Another scheme to exploit IR35 is to manipulate the SIC code of contractors from their actual industry to an industry such as hospitality in order to claim more VAT.  Again, this will act as a red flag to HMRC that tax avoidance is afoot so don’t be tempted by this either!

Remember, ultimately this is all about ensuring th correct amount of tax is paid, and not bending the rules!

Determining the payment method

Generally speaking, this will be either agency PAYE or umbrella PAYE.

Many contractors are reluctant to use an umbrella due to a combination of bad reputation through the tax avoiding element and the fees associated with it.  Equally, many end users are reluctant to be associated with them for the same reason.

Umbrella companies have their own accreditations, notably FCSA and Professional Passport.

Provided the umbrella has recognised accreditation, they should be compliant and therefore suitable to use.

Blanket ban on contractors….

Some end users have decided, as a result, to no longer use contractors.  Whether this stance continues after April will depend on whether they feel they are cutting off their noses to spite their face, time will tell!

Umbrellas, agencies and PSLs

If operating through umbrella, most agencies will have a preferred supplier list (PSL) of the umbrella companies that they are willing to work with.  In theory, provided the umbrella is compliant, the contractor should be free to use their umbrella of choice.

In practice, however, the agency will have arrangements with a limited few umbrellas, mainly the large players, which does tend to make the market restricted, which of course is just how the big players want it!

What effect on rates?

Drivers moving from PSC to agency PAYE or umbrella will be looking for increased rates to make up their loss of income, but with margins for payroll so low, any increase will have to come from end users.

Contractor discontent is understandable from their point of view, and many have tended to regard the agencies as the villains of the piece when they are merely responding to the change of legislation.

Ultimately, they just have to suck it up, they’ve enjoyed an unfair advantage for too long and they are now being treated like any other employee.

Conclusion

If you have not yet started to prepare for off payroll reform in April, it’s time to get a shift on, there is a lot to get organised if you are to be prepared and compliant in time.

Both recruiters and end users have preparations to make in order to be compliant come April, and we see our role very much as wanting to help all elements in the supply chain to know what they need to do to be ready.

It’s in everyone’s interests not to have a last minute panic and slip up because you are rushing your preparations.

It really is a case of ‘don’t shoot the messenger’ we’re only trying to help spread a little understanding of this complex legislative change!

So far as drivers are concerned, be aware that the end user is always likely to err on the side of caution so far as determinations are concerned, but remember they are the ones held responsible if they get it wrong!

Hopefully things are clearer now about the implications and what you need to do in order to be ready for April.

For further information please visit – https://www.gov.uk/topic/business-tax/ir35

 

The Jobsworth Blog – February

The Dreaded B-Word

Logistics and Brexit

Brexit has had wide-ranging effects upon the logistics sector, which was inevitable and as in every period of change, there have been winners and losers.

The Covid elephant in the room

The run up to Brexit was filled with doom about Operation Stack and the closure of the French border over the Christmas period had the media predicting that Kent would be transformed into one large lorry park.

Drivers stranded over Christmas was a good story for the media for the human interest, the requirement for negative Covid tests inevitably caused delays before Brexit occurred.

In the event, the impact of Covid on the economy caused less chaos at Dover than would have been the case under ‘normal’ economic conditions, and the predicted massive queues failed to appear, many operators having decided to ride out the initial transformation period which had the effect of reducing the initial impact of the change.

Warehousing, swings and roundabouts

 An initial impact has been an increase in the number of UK hauliers seeking warehousing space on The Continent, which has resulted in a warehousing boom in The Low Countries.

By the same token, there has been an increase in warehousing demand among Continental hauliers in order to maintain stock to guarantee delivery times.

Any port in a storm….

The desire to avoid delays at Dover is having a beneficial effect on other UK ports, especially Liverpool, as hauliers choose alternative routes for export.

This will lead to an upsurge in demand for warehousing and associated services and will therefore have a positive economic impact on the regions in question.

Taxing your patience….

Getting to grips with new paperwork and the tax implications was always going to be a challenge, and so it has proved.

Concerns and confusion about ‘rules of origin’ when re-exporting and the payment of ‘double duty’ VAT by EU customers when re-importing has caused delays and frustration to many hauliers, compounded by an increase in shipping costs and waiting times.

A lot of costs to absorb and consequently considerable pressure on margins.

IR35 and driver angst

Add discontent about having to move from PSC to agency PAYE or umbrella PAYE for drivers with inside IR35 contracts post April and the subsequent pressure on rates, and you have a major headache to contend with!

Agencies of course have a lot to contend with, having to ensure they are compliant with the changes to come.

Add a ‘shoot the messenger’ approach from many drivers towards agencies, and you have a rough ride for recruiters which not remotely of their making!

Going with the flow….

However, overall freight flows have returned to the same levels as last year.

Outbound roll-on roll-off lorry traffic for Great Britain for the month so far stands at 98% of last February’s levels, while inbound traffic is at 99% of last year’s levels.

About 80-90% of laden lorries are arriving border-ready.

The larger manufacturing firms in particular appear to have taken advantage of new systems designed to prepare loads for the border on leaving premises.

Specific impacts

Lorry traffic on the crossing from Kent to the EU on ferries and via the Channel Tunnel in January was 67% of the same month in 2020, and 82% in February.

Although there is no formal count of empty lorries, a variety of ferry company, French, and UK official data suggest the proportion of empty lorries going back to the EU is around 50%.

This is a significant increase from pre-Brexit conditions when this was normally at 25-30%.

There is also evidence of freight routes changing and more traffic going via Harwich and Immingham to the Netherlands, showing the impact of the recent French Covid testing policy.

Documentation

Government data on lorries being turned back due to the wrong documentation is now below 2.5%, having been closer to 8% in the first days of the new regime.

Combining the reduction in traffic flow with the increased number of empty lorries, it is possible to calculate that actual lorry transfers of freight in January from Kent to the EU were substantially down, by around 2,000 lorries a day compared to January 2020.

Even now, with overall levels back to normal, there are around 1,000-2,000 fewer lorries exiting the whole of Great Britain with actual freight.

Partly this is the result of pre-Christmas stockpiling, but that effect is likely to be waning now.

Clothing and food sectors hit hardest

Exports of clothing and apparel have been hit mainly by the Covid lockdown impact.

But the fall in food, agriculture and sea fish exports is the impact of the post-Brexit transition period.

Conclusion

The big picture is that the worst-case scenario queues have not materialised. But the economic impact in specific areas of the economy is noticeable.

Both the haulage industry and the recruiters that serve it still face significant challenges ahead, but it appears that overall the effects of Brexit have not been as pronounced as some feared.

Through resilience the double-whammy of Brexit and Covid has been very challenging, but not catastrophic, and for that we can all be very thankful.

 

 

New Office!

Our new Kidderminster office is now open!!
Here’s our regional director Jay, and our IT guru Paul opening the branch, and we couldn’t be happier.
Jay will be in and around the Worcestershire area to offer solutions to all your recruitment needs.
He is backed by a great team of experienced recruiters.
…And Paul is on hand of course, just in case any of those pesky gremlins get into the system.
Good luck guys!!!

BCB Boxing Event

we are wolves boxing

Black Country Boxing - Poster with Kyle Williams

We at Jobsworth would like you to join us for a night of championship boxing including a European title shot for our very own Kyle Williams.

From the start of his professional boxing career, we have sponsored and supported Kyle on his journey.

This year we have also put our support behind Black Country Boxing the promotions arm behind the successful Wednesbury based stable that Kyle fights from.

We are extremely excited about this home-grown card aptly named WE ARE WOLVES and look forward to sharing the excitement and hospitality with you.

The doors open at 6.30 with the 1st bell at 7 pm. We will be at the venue from 6.30, please call either of the below mobiles on arrival.

I believe the dress code is smart casual and not formal so we can enjoy some food and refreshment and hopefully a great night of Boxing.

Should you require any further information please don’t hesitate to contact Robin Hayes on 0121 5506667. 

MacMillan Coffee Morning

A massive thank you to everyone who came and supported our coffee morning held last week at our Pensnett Office. It was nice to see a few friendly faces and catch up with a few people we haven’t seen for a while as well.

Also, a special thank you to Alan at JJX logistics who donated some very popular cupcakes!

Mary’s homemade cheesecake was also a big success, putting a number of internal staff in a ‘overly full hole’ for an hour or so.

We raised a total of £250 for MacMillan which is fantastic and a very worthy cause.

Charity 5-a-side

5 a side

Well done and thank you to everyone from Jobsworth who participated in the day, whether you played or just came to support!

Jobsworth’s destiny wasn’t to lift the trophy but if we helped to make the day a success then that’s more than enough.

£2400 raised on the day and watch this space for more events we plan to participate in and hold ourselves.

MacMillan Coffee Morning

Macmillian coffee morning poster

Come and join us on Friday 27th September for Jobsworth’s MacMillan Coffee Morning

Everyone is welcome at our Pensnett Office, and the doors will be open from 10am – 2pm

Coffee, cake, and fundraising for the brilliant charity of MacMillan

Unit 65

Third Avenue

Pensnett Trading Estate

DY6 7UP

Ample parking is available just opposite

Starts at 10am

New office exposure

Employee standing infront of Jobsworth entrance

As an associate of the Black Country Chamber of Commerce, we have been lucky enough to be selected as ‘Member of the Week’ in their newsletter, with a special feature about our new office.

Our business development manager Sarah managed the project so a big thank you to her and the team thus far.

Click here to see the article.