UK's Inland Revenue Continues To Get The Worst Of IR35 Hearing

Jason Gorringe, Tax-News.com, London

20 March 2001

On Monday the IR35 hearing entered its fourth day in the UK High Court. The Professional Contractors Group (PCG) is challenging legislation which effectively subjects many self-employed consultants to employee taxation.

The day was taken up with the bulk of the Inland Revenue's case, presented by Richard Plender QC. A large part of the PCG's case is that IR35 amounts to a distortion of competition through the giving of State Aid to bigger companies, which are better (and unfairly) able to defend themselves against individual consultants because of IR35. Much of the time, Plender seemed to be trying to show that State Aid can be found under any carpet, in order to trivialise the point. He succeeded in this: for instance, the Court agreed that if the decrepit London metro prevented a consultant in Mayfair from reaching a client in Kensington then this was a case of State Aid (public support for the metro) discriminating against Mayfair consultants.

But Plender may be wrong to make the affair seem like an episode from Kafka. The Inland Revenue is perceived as a Kafkaesque institution in the first place, however hard it tries to humanise itself, so to draw attention to its predominant characteristic in this way may be counter-productive.

It's always difficult to second-guess a judge's thought processes, but Mr Justice Burton's general attitude yesterday seemed to be less than totally positive towards the Revenue. For instance, when Richard Plender alluded to the PMG's contention that “some people may go abroad or not come to the UK” in consequence of IR35, the judge said “yes – and he was right”. Plender was clearly unhappy but finally had to accept that this was the case; however he did not accept that it would be “hundreds or thousands” of people.

Mr Plender will complete his presentation on Tuesday morning, and after an opportunity for rebuttal by the PCG it is still expected that the hearing will finish today. Judgement is expected well before the crucial date of April 19th, when tax is due on the current year's income.

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