The PCG claims that the controversial IR35 tax on small, knowledge-based businesses, which subjects many independent consultants to employment taxes, is illegal under European law. The appeal followed the High Court dismissal of PCG's claims in March and April earlier this year that IR35 contravenes European legislation concerning illegal state aid and is a barrier to free movement.

The speed with which the three Appeal Court judges have reached their conclusions may spell bad news for the PCG, although it's possible that the judges may again criticise the Revenue's interpretation of the legislation while letting it stand, and that may cause the Inland Revenue to apply it more flexibly.

During the appeal hearing, Lord Justice Robert Walker was particularly critical of the fact that the Inland Revenue had not looked at alternatives to IR35 in more depth, and he also accused the tax department of not seeking to reduce the gulf between Schedules E and D. The judges were also critical of the 5% cap on expenses applied to contractors caught by IR35.

The Revenue has said that it will in turn appeal, if the PCG wins, and so far at any rate it has shown no signs of flexibility or leniency in applying the IR35 rules. The pursuit of self-employment has been a long term fetish with the Revenue, and it's not likely to give up easily when it has just gained a powerful new weapon to use against what it sees as tax-cheats.