IR35 Hearing Will Continue Next Week; PCG Still Ahead On Points

Jason Gorringe, Tax-News.com, London

16 March 2001

The Judicial Review of the Inland Revenue's IR35 legislation on self-employed consultants will now extend into next week. There had been fears that the Revenue's council, Richard Plender QC, was booked into another case next week, and that the hearing would have to reconvene later, but on Wednesday both Mr Plender and Mr Justice Burton said they had cleared their diaries for the early part of next week to help expedite a judgment.

Wednesday's proceedings gave the anti-IR35 faction considerable hope, but on Thursday the case seemed to observers to move into an impenetrable legal thicket from which almost any outcome was possible.

On Wednesday, Mr Justice Burton told the IR35 judicial review, brought against the Inland Revenue by the Professional Contractors' Group, that the PCG so far had not proved their case for all contractors, seeming to imply that they had done so for IT contractors at any rate. The PCG's main argument, that IR35 unfairly discriminates against one-person consultancy firms in competition against large consultancies, had been addressed only to the IT sector, said the Judge. The PCG has around 12,000 members, more than 80 per cent of whom are IT contractors.

Obviously, an outcome which applied only to one type of consultant (there are also many in engineering, the professions and the liberal arts) would be messy and impossible to enforce. "If a ruling were restricted to the IT sector, you have the problem of how to define an IT professional. How does the Revenue respond to that?" said Anne Redston, a partner at Ernst & Young, quoted in the Financial Times.

On Thursday, argument went back and forth on the competition aspect, and the PCG's counsel, Geoffrey Barling QC, told by the Judge to finish by 14.30, tried to address some of the subsidiary issues.

Attempting to reach for a compromise, Judge Burton offered to make a direction that the Revenue should state an opinion on whether a contract was subject to IR35 or based on 'being in business on your own account'. Geoffrey Barling thanked him, but said it would be a mere consolation prize. The Judge nodded in understanding and said that the PCG's best tactic would be to go on with the argument that IR35 was an obstacle to competition under Article 88 of the Union Treaty and to freedom of movement under Article 39.

Geoffrey Barling sat down at 14.40, and the remainder of Thursday's sitting was taken up by preparatory arguments put by Richard Plender on behalf of the Revenue. His substantive speech will begin today.

It is difficult at this stage to predict the outcome of the case, but the crucial issue seems to be whether a lone consultant can realistically compete against large consultancy firms. If yes, then it's clear that IR35 hampers the lone consultant, and is therefore anti-competitive and discriminatory. If no, then all the Revenue has done is to increase taxes, which may be morally repugnant but is not illegal.

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