High Court Deals New IR35 Blow To UK Freelancers

by Robin Pilgrim, LawAndTax-News.com, London

08 September 2008

The Professional Contractors Group (PCG), which represents the UK’s freelancers, has expressed its shock at the High Court’s judgment in the “Dragonfly” IR35 case.

PCG member Jon Bessell, the owner of Dragonfly Consultancy Ltd, failed to overturn a tax demand for GBP99,000 after the court upheld a previous ruling by the Special Commissioners that he was effectively an employee of the AA, the company he was performing work for through his own IT system testing business.

Speaking after the judgment was delivered, he said: “I am devastated by today’s news; not only does it affect my family and me, but all the other freelance professional consultants who are trying to earn an honest living."

He added that: "I was never an employee of the AA and I simply cannot understand how the High Court has reached its decision. It’s a travesty of justice. I would like to thank all those who have supported me through this case, in particular the Professional Contractors Group which has been superb throughout.”

The PCG supported Mr Bessell in bringing his appeal because of the potential wider implications of the case.

Commenting on the outcome of the case, PCG managing director John Brazier observed: “This is a potentially massive blow to freelancers throughout the country. This case threatens the long-established defences against IR35; we will be looking at the judgment in very close detail to work out its full implications.”

IR35 was announced in 1999 as an anti-avoidance measure. It seeks to deny that freelance contractors are genuinely in business and to tax them as employees without establishing a proper employment relationship. However, the PCG says that its extraordinary complexity makes it almost impossible for contractors to assess whether they fall within it or not, and in some cases their status may rest on contracts they have never seen.

Moreover, it is argued that the government is ultimately shooting itself in the foot with its continuing pursuit of IR35 cases by hindering one of the few growth areas of the UK economy.

“The Dragonfly ruling has the potential to be another nail in the coffin of flexible working in the UK, by an administration that simply does not get the concept of a highly reactive and skilled workforce that has brought so much prosperity to the country,” remarked Dave Chaplin, CEO of ContractorCalculator, an advisor to freelancers and contractors.

“This ruling basically means HMRC and the Treasury will be able to raise additional tax revenues where they see fit, resulting in increased fears by any contractor that they could be targeted for an investigation and be forced to pay back taxes, National Insurance Contributions and, adding insult to injury, penalties," Chaplin warned.

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