IR35 tax changes helped cause the lorry driver crisis

Derek Reynolds

Derek Reynolds

Most analysis of recent petrol shortages and supply chain issues have focussed on Brexit, Covid-19, or Russia's Nord Stream 2 pipeline.

However, a major reason behind the crisis lies closer to home and should be far easier to fix.

A change to our employment taxes regime has been the main cause of the mass exodus of British-born haulage drivers from Britain’s roads. 

In April of this year the government changed the off-payroll rules that determine whether someone who works for a company is classified as a contractor or an employee.

These rules, known as IR35, used to allow drivers, and any self-employed person, to decide for themselves whether they were contractors or employees.

While being self-employed leaves workers without the protections that come with permanent employment, it does potentially reduce your tax bill and leaves you with more money in your pocket. For many, such as the construction industry, it has historically been an attractive option.

Agencies and haulage companies were also keen on using contractors, as they were able to lessen their outgoings and remain more flexible.

However, changes to these rules mean that, since April, it has been the large freight and logistics businesses that use drivers, rather than the drivers themselves, who are required to decide whether a worker is an employee or contractor. Moreover, those large businesses take the PAYE risk if they make the wrong call.

The convoluted compliance and risk has caused many companies to simply classify their workers as employees; often steering them towards umbrella PAYE companies. 

Meanwhile, those drivers who have been moved into employee status are losing out on hundreds of pounds a week (net) because of businesses’ reaction to the legislative change. 

This effective pay cut forced many drivers to abandon the industry, leading to the current huge supply chain issues. A recent Road Haulage Association survey estimated that there is currently a shortfall of 100,000 drivers. Without the tax breaks associated with self-employment, there is little incentive for many to keep driving. 

The same RHA research showed that 53 per cent of hauliers believe that IR35 is a reason for drivers quitting the industry, closely behind the UK leaving the EU (58 per cent) and retirement (59 per cent). Covid was some distance behind at 39 per cent. 

Self-employment is not a bad word

If we agree that IR35 is part of the problem, then self-employment must be part of the solution. The government needs to act to get freelance drivers back into the sector and back behind the wheel.

There is a mistrust around self-employment and perception that it is exploitative. We need to understand that ‘self-employment’ is not a dirty word. When applied correctly, and with strict compliance, self-employment encourages flexibility and productivity, and will generate wealth. 

The supply chain and haulage crisis epitomise this. Companies who are bold enough to continue to use freelance drivers will attract more talent because the drivers themselves will stand to be paid more, and able to work more flexibly. Every business needs to attract top talent to thrive but ignoring how the new tax system works is only adding to the current supply chain problems.