UK's IT Professionals Will Appeal IR35 Ruling

by Jason Gorringe, Tax-News.com, London

28 August 2001

The UK's Professional Contractors Group (PCG), which lost a High Court action against the Inland Revenue earlier this year when it tried to upset the Revenue's controversial IR35 legislation, has announced that it plans to take the case to the Court of Appeal, having raised £500,000 from its members to finance the case.

IR35 is a rule introduced in the March 1999 budget that makes individual contractors who work for a single client for long periods liable for income tax as if they were employees. The PCG was formed in May 1999 to fight IR35. Most of its 14,000 members are IT contractors. The Revenue estimates that the changes will affect about 90,000 people and raise an extra £350m each year.

In the case brought last March by the PCG it argued that IR35 was illegal under European law as it was unfair state aid and created a barrier to free movement. Mr Justice Burton said that the Government had incited hostility by suggesting that all one-person service companies were camouflaging long-term contracts with employers to pay less tax. He also agreed that contractors were in competition with larger consultancies and that IR35, introduced in the 1999 Budget, would distort the marketplace. However, he said that the legislation was not contrary to European law.

Following the judgement, the government said it would improve the information it gives to one-person consultancies, but said it would make no changes to IR35. In the election campaign which followed, the Tories said they would scrap IR35 if re-elected.

Jane Akshar, chairman of the PCG, said: 'Our members decided to fund an appeal against the High Court decision because we believe we have a good case and we want to fight for our right to run small businesses.

'These people are hard working businessmen and women whose businesses are being damaged and in some cases destroyed because of unfair treatment by the Government. IR35 treats these entrepreneurs as if they are employees for tax and NI purposes and therefore prevents them from competing on a level playing field with their larger competitors.'

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