Tightened Rules On Self Employed Driver Status

THE RECENT update to the Senior Traffic Commissioner’s Statutory Guidance documentation, relating to the topical issue of employment status and more specifically that of drivers, has raised many concerns. Jim Wright, employment law partner and Richard Wadkin, partner and head of road transport at Shulmans LLP explore what the changes mean for both drivers and operators.

This recent guidance on the use and abuse of so called ‘self-employed’ models of driver engagement is evidence of the Senior Traffic Commissioner following the line put forward by HMRC.

HMRC is one of a handful of super regulators in the UK. It can close down businesses, pursue individual directors, launch unannounced raids and levy significant fines. It has been expanding its sphere of influence by encouraging other regulators to follow its lead on key issues.

HMRC has long held a concern that drivers who are supplying only their time and expertise into driving vehicles provided by an O licence holder cannot be properly described as self-employed.

Despite changes to the tax regime since 2015, being self-employed still provides a taxable benefit, as opposed to being an employee. Sometimes this taxable benefit is split between the O licence holder, by way of a lower rate of pay to the driver, or sometimes it is to the benefit of the driver. In either instance, however, HMRC sees that the use of so called self-employed drivers creates a loss of tax revenue.

Since HMRC embarked on the process of encouraging other regulators to follow their lead, the Senior Traffic Commissioner’s guidance indicates that it is the latest regulator to fall into step with HMRC. The guidance, at para 37 Statutory Document No5 (entitled ‘Employees’) reflects the Senior Traffic Commissioner’s view that it will be ‘rare’ for a driver to be genuinely self-employed unless they are an owner-driver.

The challenge for O licence holders in respect of drivers is twofold. Firstly, how can a licence holder claim that is has the supervision over, and direct and control of, its drivers if those drivers are described as self-employed? Secondly, any use of self-employed drivers who are not owner-drivers potentially opens up an argument that the O licence holder, by being in breach of the new guidance and facilitation a loss of revenue to HMRC, cannot be of ‘good repute’. Both of these issues could lead, ultimately, to the loss of an O licence.

Practically, there are other consequences for O licence holders: A Traffic Commissioner when looking at an O licence holder, for whatever reason, may well ask for information about the engagement model used for drivers. Traffic Commissioners are also likely to refer the matter to HMRC where the use of self-employed models are discovered. Further, HMRC’s arsenal of financial penalties and interest could, in effect, be invoked from a finding by a Traffic Commissioner.

Prudent transport managers and O licence holders may therefore wish to consider undertaking an audit and identifying any driver, who is not an owner-driver, and for whom PAYE is not operated in full. It is possible that some of these currently ‘self-employed’ drivers might be considered to fall into the set of circumstances that the new guidance calls ‘rare’, but it is clear very many will not. As such, an exercise of putting the individuals on a correct engagement model should be considered.

This is likely to cause an increase in costs, but the cost of regulatory action, by the Traffic Commissioner or HMRC, or both, will be greater. Finally, operators will also need to consider whether there are any historic tax liabilities or O licence regulatory issues that need to be addressed.

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