A judge dismissed a claim by former police officer Gordon Stutchbury against a tax ruling that forced him to pay more than half of his company’s turnover to the Inland Revenue.
The IR35 tax, which prevents contractors from offsetting more than 5% of their income against tax, has proved unpopular both with contractors and employers, who fear it will push up contractor rates.
The decision, described by Stutchbury’s supporters as “a bitter blow", leaves confusion over the tax law, and may make it difficult for the self-employed to predict what work will be taxed under IR35 and what work is exempt.
“It is clearly disappointing and as anyone who’s ever run a business knows, this sort of confusion adds to the pressures and uncertainties.
"It’s almost impossible to run a business on that basis,” said Stutchbury, speaking after the judgment.
Stutchbury, who was backed by the Professional Contractors Group, brought the case after it was ruled that he was subject to the tax despite being “in business on his own account”.
Observers have suggested that Stuchbury’s case may have been damaged by his decision to represent himself before the authorities, rather than hire a legal representative.
His company, Synaptek, provided services to around 20 clients and employed up to four people.
The Professional Contractors Group has 14 days to consider an appeal.