We have a potential client who wants to start an owner driver scheme. These owner drivers are to be regarded as independent contractors and the company would thus not be liable to deduct PAYE for them. My question is, if legislation were to change and the
Important:
This answer is based on tax law year ending 28 February 2016.
Answer:
The owner drivers, we accept they are individuals, can never become ‘personal service providers’ – that requires the person rendering the services to be a company or a trust. It is unlikely that that principle will be amended. In any event, if the legislation were to change, it is unlikely that it will be retrospective.
You state that the “owner drivers are to be regarded as independent contractors”. From a tax point of view an employer / employee relationship will exist the moment remuneration is paid. Generally speaking, a person making payment (as commission or as a percentage of turnover attributed to the person) to an individual (in respect of services rendered) would have an obligation to deduct employees’ tax from that payment unless the individual rendered the services in the course of a trade carried on independently (as required by proviso (ii) to the definition of remuneration in paragraph 1 of the Fourth Schedule to the Income Tax Act) by him or her.
It is the employer's duty to determine whether a person is an independent contractor or an employee and whether employee's tax should therefore be deducted or not. The employer is in the best position to interpret the facts of each case.
The current practice generally prevailing in this regard is set out in Interpretation Note 17 (issue 3). The note deals with the statutory tests (including how to apply the statutory tests) and common law dominant impression test. The table on page 17 is very useful.
The general principle was explained as follows by Judge Streicher in the Niselow case. The Judge said that "…an employee is a person who makes over his or her capacity to produce to another; an independent contractor, by contrast, is a person whose commitment is to the production of a given result by his or her labour…" The judge then concluded by saying that the relationship between the parties must remain one in terms of which the person doing the work undertook to produce a certain result and not to render personal services to person paying for it to be a contract in terms of which independent services are rendered.