Contractors wait on IR35 ruling

Contractors awaiting the outcome of the Judicial Review into the controversial IR35 legislation will not hear the outcome until...

Contractors awaiting the outcome of the Judicial Review into the controversial IR35 legislation will not hear the outcome until this week at the earliest.

The review of IR35, dubbed a stealth tax on contractors by its opponents, was due to end on 15 March, but was extended until 20 March by the judge overseeing the case.

Time is beginning to press upon contractors, with IR35 due to come into effect next month. The outcome of the review will determine whether contractors, previously taxed as businesses, will be forced to pay PAYE tax by the due date, 19 April.

Gareth Williams, chairman of the Professional Contractors Group (PCG), told MicroScope he would be “very surprised if the review went on longer than Tuesday”, although he expected the judge would take several days to issue a ruling.

The PCG finished presenting its case last week and, at the time of going to press, the Inland Revenue had presented about an hour of its case. Williams revealed the PCG was feeling confident: “The judge seems to have understood the logic of our case.”

Williams said comments by the judge that under IR35 contractors might be entitled to employee benefits would help the PCG’s campaign. The increased cost of providing benefits to contractors meant that “we’ve all got a shared interest in making sure we don’t get hit by IR35”.

The PCG presented evidence to support its claim that contractors, regardless of the industry they work in, would be adversely affected under IR35. The new evidence, from contractors in management and the sugar industry, came in response to a comment from Justice Barton that the PCG’s case was IT-centric. About 80 per cent of the PCG’s 12,000 members work in IT.

The PCG claimed IR35 would disadvantage individual contractors when bidding for business against larger consultancies which were taxed at company rates. The PCG argued IR35 is a form of indirect aid to large companies, which is illegal under European law.

Given the short period of time affected contractors would have between the ruling and the beginning of the new tax year, Williams admitted contractors “have to be planning for both eventualities”.

The cautious sentiment was echoed by Recruitment and Employment Confederacy (REC) chief solicitor Belinda Brooke who warned “in advance of a judgement, people have to accept the status quo”.

The REC, an industry body for recruitment consultants and consultancy businesses, has been providing model contracts for the contractors its members deal with, but Brooke warned it was individual contractors who were “in the firing line” if IR35 stayed in place and the Inland Revenue decided they were in breach of the law.

The Inland Revenue has estimated IR35 would raise the amount of tax paid by contractors from 21 to 35 per cent of their gross income.

IR35 has the potential to affect businesses of up to 20 people, Williams warned. If IR35 were to be upheld, it would “severely restrict the labour market”, especially in areas such as IT.

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