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Tax and tech turbulence accelerate change in the professional driver industryby
Once a quiet, relatively unloved niche for accountants, the world of taxi and private hire drivers is in for a tumultuous and transformative two years thanks to a combination of legislation and technology.
Changes over the next two years mean that many professional drivers will be more visible to HMRC than at any point before, adding to the seismic shifts in the sector driven by technology and the pandemic.
Apps such as Uber and Bolt are responsible for vast changes in the taxi and private hire vehicle (PHV) trade for the best part of a decade, but wider forces have also buffeted the driver industry in recent years. As the country shut down in March 2020, people relied heavily on drivers to fill the gap left by lockdown, with some switching from driving people to delivering goods or groceries and many joining the industry for the first time.
While demand for their services has never been higher, the driver trade is now suffering from a labour shortage. The latest government figures put the number of licenced taxi and PHV drivers at 343,800, a figure that has dropped by more than 5% since hitting a record high in 2020.
With new ‘tax check’ rules and the next phase of Making Tax Digital hoving into view, the opportunity for accountants to educate and advise on a range of subjects, from tax and software to general business setup, means that a once unloved sector could present firms with an opportunity to expand.
Conditionality: the elephant in the cab
Looming large over the industry is the issue of tax conditionality, part of HMRC’s push into what it calls the ‘hidden economy’. This not only targets taxi/PHV drivers and operators but also scrap metal businesses.
Coming into force on 4 April 2022, conditionality is new legislation that will require all self-employed taxi and PHV drivers to pass a ‘tax check’ to renew their operational licence. HMRC has asked each separate local licencing authority to collect a tax check number separate from a taxpayer’s UTR. If this isn’t done, the licensing body will be unable to consider the application and the applicant will no longer be licenced to operate.
To acquire the 10-digit number tax check number, drivers will have to go online to a gov.uk site and answer a series of questions. Although details are yet to be finalised, it’s believed questions will include how long the driver has held a licence.
According to Agent Update 90, because of the “simple nature” of the check and its link to licensing processes, the design of the service does not include an option for agents to complete the check on a client’s behalf, and according to people familiar with the system, it will not be available over APIs that could allow it to link to other software.
Industry sources and local authorities have expressed concern that the clampdown risks exacerbating the current shortage of drivers in the industry, as those who currently drive people could switch to delivering goods or food, or leave the trade completely.
Gary Jacobs, whose firm Eazitax has been providing support for the professional driver industry for 25 years, told AccountingWEB that he has treated the changes as an educational exercise, preparing branded ‘conditionality boxes’ containing an explainer booklet and a QR code for clients to scan that access simple videos about the legislation.
MTD drives opportunities for firms
Following hot on the heels of conditionality comes Making Tax Digital for income tax self assessment (MTD ITSA). The next stream of the government’s digital taxation project comes online from 4 April 2024.
With a somewhat undeserved reputation as an admin-heavy sector with a low price point, some in the accounting industry worry that firms may take a practical approach and either disengage or seek to price out lower turnover sole trader clients. However, for those willing to deal with the industry at scale, MTD could be an opportunity for the right firm.
Glenn Martin, owner of Northeast firm Avery Martin, believes that driver clients could potentially be the biggest single category for firms looking to replace previous contractor-style work eroded by the government’s reforms to off-payroll working rules.
“If you add in all the Amazon, Uber, courier, food delivery and other gig drivers, there is a huge number of them,” said Martin. “So if you took on or built an app for drivers which could log simple income, expenses, mileage and the accountant could manage it all via a dashboard, it would allow for mass submissions of the MTD ITSA data.
“It would be a numbers game, but if you had 1,000+ drivers paying you £x per year and it was delivered by relatively junior staff, there has to be a business in it,” added Martin.
Mitch Hahn, CEO at chartered accountant firm Nordens, also sees potential advantages in the shift to digital. “I understand MTD ITSA can be seen as a negative, but the changes it drives will allow us to be proactive with clients rather than reactive,” said Hahn. “With more real-time data available, you can help the client make better spending decisions, improve their expectations and get a better idea of their best services. For example, drivers might make lots of small trips that actually lose them money, while airport runs might be the most profitable. They can start making decisions that turn into cash.”
Eazitax owner Gary Jacobs believes that it also presents a training opportunity for clients, some of whom struggle with digital skills poverty or may not have English as a first language. “With Making Tax Digital, people that used to bring a box of receipts will have to do four digital filings plus a return each year,” he said. “For us, it’s about education rather than forcing a tech solution on them. We’ve started to use basic videos like ‘what are books and records’ to teach them what they need to do.”
MTD: a potential handbrake
In a recent Any Answers thread, AccountingWEB readers discussed the challenges many accountants face when seeking to tackle MTD for their clients.
“I have maybe 80 taxi drivers,” said SXGuy. “I'd say 99% of them have a cashbook to record fares and expenses. Those that work the apps receive a statement showing all journeys and fees. I'd say probably none of them would be interested in doing it any other way.
“The simplest way for MTD,” they continued, “would be to make sure they have a dedicated bank account for income and expenses and use open banking to reconcile payments.
Frequency probably every three months. With auto-tagging rules, I may be able to do mostly everything automated except for submission.
“It's not viable that I meet them face to face four or five times a year to transpose their cashbook onto software, so that doesn't leave much other option. From their point of view, they won't want or care about doing anything digitally so it will most likely fall to me to do it.”
Price point and user education
As with most industries, the professional driver market features a number of specific apps, including The Drivers Tax App and Taxi Manager, and newer, more general tools such as untied and GoSimpleTax have also targeted the sector.
Kevin Sefton, co-founder of tax app untied, told AccountingWEB it was vital for any software tool to work with advisers or practices that understand the trade. “The industry, and the gig economy as a whole, means that each individual has their own specific considerations,” he said.
While changes to digital taxation may encourage bigger players from the accounting software world to take an interest in drivers’ tax affairs, Jacobs feels their pricing doesn’t work in the industry at the moment. “Are drivers going to pay £40 or £50 a month just for a piece of data capture software? A lot of tech companies have made that mistake. The client needs to stop their car, open their software and something should flash up and say ‘hello, what have you earnt this week, what have you spent this week’”.
At Eazitax, Jacobs currently uses OnBalance, a basic data capture tool from Thomson Reuters, but is currently in the process of building his own onboarding app to serve the industry.
“Most drivers want choice, so from an accountants’ perspective, we’re trying to give them choice. Our job is to take the shoebox client and get them using data capture software, then move them to using our app, which will provide delivery and capture, push notifications etc.”
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