bucket and chain
iStock_ewg3D_bucket and chain

The Hitchhiker's Guide to IR35: Buckets and chains

by
22nd Dec 2016
Save content
Have you found this content useful? Use the button above to save it to your profile.

David Kirk explores how the public sector reforms for IR35 will work in practice where a chain of agencies are involved.

I have been examining how the new IR35 law, and HMRC’s online tool, Marvin, will operated in practice for contracts in the public sector.

This is my final post in which I predict how the employment agencies may react. In my earlier articles, I examined how Eric the IT contractor, and Eva the doctor, managed to circumvent being caught by IR35.

Reality wall

I actually think that Eric and Eva will be unlikely to avoid IR35 in the ways that I suggested in those case studies, as the reality will be far more complicated.

Agencies are already very reluctant to operate payrolls, and from April 2017 they will have an additional reason not to. They will not pay the personal service companies (PSCs) directly, just as they do not at present pay individuals directly, but will insist on another company joining the chain behind them to sort all this out. 

Everything that comes in to the agencies will go out, minus their margins, into these ‘buckets’, as one might call them, who will then send the net funds to their in-house umbrella or the PSCs as appropriate.

Bucket checks

The buckets will obviously have to do some proper checks as to whether IR35 applies or not before passing anything on to a PSC (something that is not always done at the moment, it is true), but where are they going to get the information from?

In Eric’s case this would be from the MoD. The bucket has no idea who to ask there, and as the ministry is not obliged to answer the bucket within 31 days (as it does not have a direct contract with it), it won’t. 

Perhaps the bucket could ask the agency? No good - they won’t reply either. The agency has made this arrangement with the bucket precisely so as to be able to get out of that responsibility, and get on with the next placement. 

How about the worker? That’s a good idea, but can they rely on him? Should they not check out what he says? 

Brain the size of a planet

Yes, of course, there’s Marvin, the online all-knowing tool. Marvin to the rescue! Let’s feed Marvin with whatever the worker tells us, add in one or two bits and pieces from the contracts, and see what he says. We have this guarantee that provided the right information is fed in HMRC will abide by Marvin’s decision – box ticked, job done, back covered and satisfied customer.

Don’t panic

If this sounds a bit like business as usual, with a layer of added bureaucracy and the sound of buckets collecting industrial quantities of money, it’s because it is.

These new IR35 rules cannot conceivably work, and will leave HMRC with its reputation in this field tarnished still further. This is a pity, because there is much that is wrong with the current IR35 rules, not least that the revenue they collect is pretty well entirely employer’s NIC. It would be far simpler just to recognise this fact and collect the NIC from the people who ought to be paying it – i.e. the employers.

In large parts of the public sector the tax due on IR35 contracts just represents money circulating around the public sector anyway, which there is no reason for agencies or private citizens to get involved in at all.

There are other, simpler solutions, and the government should start again. Perhaps they could get Slartibartfast to switch his attention from fjords to the UK tax system – a far greater challenge.

Replies (11)

Please login or register to join the discussion.

avatar
By Rammstein1
22nd Dec 2016 13:52

Very good series of articles.

Thanks (1)
Accountants in West London Ealing
By Vic Woodhouse
24th Dec 2016 16:33

Great articles David

If you check Hall v Lorimer http://www.bailii.org/ew/cases/EWCA/Civ/1993/25.html it is eight pages and involved three Lord Justice’s two Queens Council QC’s and two solicitors and their firms. In the Brexit world the Govenment and HMRC are crazy to foist this level of complexity onto ordinary working people and their accountants. They have to have a tax based solution; probably centring on radical reform of national insurance.

Thanks (1)
avatar
By SKCOX
28th Dec 2016 14:28

Great stuff, and very entertaining. Thanks!

Thanks (0)
Should Be Working ... not playing with the car
By should_be_working
30th Dec 2016 11:40

With the 'dividend tax' (read Ee's NI) now in place the revenue 'lost' through PSCs is going to be much lower than previously anyway, so the cost/benefit calculation for HMRC pursuing these cases will be even more tenuous. As David says, just whack Er's NI on at the engager's end and be done with it.

Thanks (0)
Replying to should_be_working:
avatar
By [email protected]
30th Dec 2016 12:11

...adding 'ers NI:
But that would involve someone at HMRC having to admit that the whole thing is a government generated mess...and that will never happen.

Thanks (0)
avatar
By IANTO
30th Dec 2016 12:06

The answer? 42?

Thanks (0)
7om
By Tom 7000
30th Dec 2016 12:32

Well if the government want more tax why not just put dividend tax up to 20% for non plcs that should do it...and no marvin and no arguments

Thanks (0)
avatar
By Joe Soap
30th Dec 2016 12:50

This is about the public sector.
Who is in charge of the public sector? The government.
If they just told public sector bodies that they were not allowed to engage people in this way would that not be a great deal less complex and much cheaper (for the government)?

Thanks (0)
avatar
By raybackler
30th Dec 2016 13:21

Welcome to the government's idea of "tax simplification". IR35 has and always will be a nonsense. It needs scrapping and starting again, not amending.

Great series of articles, by the way. The illustrations are so good at highlighting the crass stupidity involved and I love "Marvin".

Meanwhile, there will be a vast exodus of contractors from the public to the private sector. It will be harder to hire IT contractors and so the government better think twice about changing any laws. But then they can't help themselves!

Thanks (0)
avatar
By TaxEye
30th Dec 2016 15:21

Great stuff!

Thanks (1)
avatar
By Romanista
04th Jan 2017 12:54

Engaging with the IR35 legislation produces much the same effect that resulted from Marvin's various dialogues with other machines and life forms; you quickly lose the will to live and if you could meet with the person who came up with the idea for IR35 you might be tempted to rearrange his/her neurons with a heavy blunt object. Some employers despise employer's find national insurance as objectionable as a Vogon and will take any measures necessary to avoid paying it. The entire tax system is creaking and requires a complete rethink.

Thanks (0)