Out-Law / Your Daily Need-To-Know

Judicial review of IR35 tax begins

12 Mar 2001, 12:00 am

The Professional Contractors Group (PCG), which was formed to campaign against the IR35 tax on independent contractors, will between tomorrow and Thursday argue before the High Court in London that the controversial tax should be lifted.

The case, which has been funded by the membership of the PCG, will claim that IR35 contravenes European legislation on three counts and therefore should be abolished.

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 National Insurance Contribution (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.