High Court will allow judicial review of IR35

Gareth Williams, chairman of the PCG said:

"IR35 is unfair and unworkable, now we are confident that we will prove that it is also illegal. The Government decided to argue against our case today - and had its arguments thrown out. The Revenue could have agreed to resolve this matter as quickly as possible at a full hearing, but instead chose to oppose our application. This has created more delay and uncertainty for the many small businesses who cannot plan for the future. Experienced technologists are leaving the UK every day because of this measure.

"IR35 should now be suspended until this issue is resolved, and we ask the Government to consider very carefully whether it should waste more tax payers money defending the indefensible. The Government should now come clean - admit it made a mistake with IR35, repeal it and enter into proper consultation with the industry.

"IR35 has been universally condemned by industry, commerce, small businesses and professional bodies, yet the Government refuses to listen or understand. Ultimately, I am convinced this measure will be defeated and the PCG is prepared to continue to fight it legally, politically and commercially."

The PCG's case is that:

• IR35 is an illegal provision of state aid to larger competitors;
• IR35 is in breach of the fundamental EC right - known as the right of establishment - in so much that IR35 discourages EU knowledge based contractors from trading;
• IR35 is in breach of the fundamental right protected by the European Convention on Human Rights in that it amounts to a confiscation of property.

The PCG says IR35 means that many small companies, mainly in IT and engineering, are unable to operate on equal terms with their larger competitors since their turnover is treated as salary for tax and NIC purposes. They are therefore, says the PCG, unable to make or retain profits, unable to allow business expenses such as training and equipment against tax and cannot invest for the future or plan to grow or develop.

The government says that IR35 was a necessary introduction to close a loophole that allowed some people to avoid paying tax and NICs by operating through a personal service company.

The PCG was formed in May 1999 by a small number of contractors who realised the damage IR35 would do to their businesses. The PCG has now grown to a membership of 10,000 and has become the representative body for independent contractors.