IR35 back before the courts

The fate of the controversial IR35 tax law is once again under debate, after a group representing technology contractors...

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.

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