IR35 Judgement Due Today

Jason Gorringe, Tax-news.com, London

02 April 2001

Today is judgement day for the UK's much hated IR35 legislation, with a ruling due to be handed down in London's High Court. Last month, a group of consultants went to court to argue that the IR35 tax rule, which came into force a year ago, constitutes illegal state aid under European Union competition law.

The legislation, which treats contractors working for large companies as employees (independent contractors argue that this stops them receiving the tax benefits enjoyed by larger firm doing the same work) has been controversial to say the least, and no doubt both contractors and employers across the UK will be awaiting the judgement with bated breath.

The judicial review, which concluded on March 20, was heard at the High Court by Mr Justice Burton. It was brought by the Professional Contractors Group (PCG), which represents the UK's self-employed contract workers. The PCG claims that the government's IR35 tax rules give big businesses an illegal tax incentive, and will drive thousands of IT workers abroad. On the other hand, the Inland Revenue claims that IR35 is designed to clamp down on tax avoidance, and that genuine businesses are not affected.

The PCG seems to have fared well in the hearing, and its only potential problem - as recognised by Mr Justice Burton - is the fact that it only presented a case for IT workers, not all contractors. The PCG has around 12,000 members, more than 80 per cent of whom are IT contractors, so naturally its case will have had an IT bent, which presents a real quandary for the judge. Experts believe that there would be chaos if Justice Burton ruled that only IT contractors should be exempt from IR35.

It is difficult to predict the outcome of the hearing. If the government wins, it means more cash in the Treasury's coffers, but at what price? IR35 has undoubtedly started to drive UK consultants abroad, particularly to the Netherlands, Ireland and the US, as well as to the UK's offshore dependencies of Jersey, Guernsey and the Isle of Man. The one certainty about the whole IR35 case is that the UK needs skilled IT workers, so why is the government doing everything it can to send them packing?

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