The fate of the controversial IR35 tax law is once again under
debate, after a group representing technology contractors completed
a strong three-day appeal against it.
The Professional Contractors Group (PCG), a body representing
self-employed IT contractors and engineering consultants, was
appealing against an earlier decision in which the High Court ruled
in favour of the new tax. The group has been lobbying the
Government to make changes to IR35 since the tax was first
announced in February 2000.
The IR35 legislation means that many contractors are treated as
full-time employees for tax and national insurance purposes.
In March, the PCG sought a judicial review of IR35, saying it
contravened European law by putting individual contractors at a
disadvantage to their bigger rivals and created a barrier to free
movement across the EU.
But the case was overturned, with the judge ruling that the tax was
to be applied across all sectors so none would be unfairly
advantaged. He also argued that although IR35 would present some
obstacle to the movement of workers, it could be justified if it
prevented tax avoidance.
In its appeal last week, the PCG contested both rulings, arguing
that the tax would not apply to all sectors but specifically to the
contracting sector, which could be seen as giving state aid through
an unfair "tax break" to contractors' larger rivals which do not
pay such tax.
The PCG also argued that the taxation of self-employed workers as
full-time employees was erroneous as contractors have to foot the
bill for costs such as training and equipment, which are no longer
tax-deductible.
Judges are now considering the appeal and will make a ruling within
six weeks.