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IR35 protesters enter High Court

And then go down the pub...

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On site report This morning at 10.30, the Professional Contractors Group took its case to the High Court in a bid to overturn the Inland Revenue's IR35 tax legislation regarding consultants. We were there to see it kick off.

It will have three days to make the case that the law is illegal as it unfairly discriminates against small businesses - namely, consultants of whom many work in the IT industry. As the law stands, consultants that work for a company on fixed contracts (usually three to six months long) will be treated as "disguised employees" and taxed as such - pushing them into a 35 per cent tax bracket rather than the previous 21 per cent.

The government claims it is removing a loophole, the PCG says it is pushing valuable IT consultants abroad thanks to a misunderstanding of how the modern knowledge economy works.

Just over 30 PCG member from as far afield as Dublin gathered outside the Royal Courts of Justice to offer support, shiver a bit and pose for photos. Few were allowed in as the case is being heard in a small court. Instead they have camped in the upstairs of a nearby pub, the Cheshire Cheese, where spokeswoman Susie Hughes jokingly told us they intend to spend the next three days. Our offer of constant coverage was accepted joyously (by us).

PCG Chairman Gareth Williams was available for comment. But before we could speak to the unassuming man, he was dragged back and forth around the High Court for the best photo. He was also distinctly uneasy when asked to walk down the road in faux conversation for the classic walking-down-the-road-in-conversation set-piece for TV news.

However when it comes to explaining his position, Mr Williams is far more confident. "The IR35 legislation is unworkable in practice," he told us. "In many ways, if the Inland Revenue were to lose here, it would be a lucky escape for them." Why? "Because if this stands, the government will be inundated by thousands of individuals bringing separate cases." Does he really believe that will happen? "Yes. Every contract will have to be assessed on its own merits - it's not a case of being caught or not being caught [in the legislation]."

Will he win the case? "We have a good case." And if he loses? "We are looking at the possibility of an appeal if we lose the case."

As one member told us: "Unfortunately, you can't attack a law for being stupid." And so, the PCG has had to rely on three main legal defences. One, the law is effectively illegal state aid as it treats big consultancies differently to small consultancies. Legal eagles are unsure of this application of the law, but the PCG's lawyer, Mr Gerald Barling QC has won a previous court case with just this sort of legal thinking.

Two, IR35 infringes EC law regarding freedom of movement for workers. The tax is effectively preventing smaller contractors from competing in the UK.

Three, it contravenes the European Convention of Human Rights as it is a "de facto confiscation of property".

This is all legalistic stuff but the main message from the non-lawyer PCG members was that the law portrays a fundamental misunderstanding of how the modern market - especially the IT industry - works.

Gareth Williams told us: "The government doesn't understand the knowledge economy. The work is very project based. People work for a series of clients for three to six months at a time. There's no need to have them for six to twelve months - companies don't need them full-time." The other members there made the same point when asked subsequently.

What about the claims that all the consultants would move abroad? "Many have already left the UK and many more are waiting for the outcome of this case," Williams said. "They can go to Germany, Holland, America." The point was also made that there is a recognised shortage or IT skills and to bring in a law that encourages them to work abroad is "stupid".

No one we spoke could confirm that they had bought their airline tickets for Thursday in case things went the wrong way. Industry observers say however it is the companies that face the brunt of the legislation as consultants will simply charge more to cover the raised tax. Despite what they say, most consultants won't up and leave, taking their families with them. But in a market where they are in great demand, an increase in fees in very possible if not probable. But as yet, you find any companies coming to the consultants' aid.

Of course, others will leave and set up elsewhere. And that's not a good thing either.

So busy in discussing impending emigration were we that only the sound of clapping caused us to turn around in time to see Gerald Barling QC sweep in the grey arches with his entourage. The Treasury's lawyers were nowhere to be seen and were widely believed to have gone in the back way to avoid people like myself.

And then the fun and games was over. "Off to the pub then?" chirped one badged supporter. The group agreed on that policy too. All was not well though. "Where will all these photos end up then?" asked one member to the PCG spokeswoman. "Well, there was Computing, the Independent, er, they're the agencies." "Oh, I'll never get any work again then." "No, the press agencies, not employment agencies."

"The paranoia's kicked in then?" we queried. We received a sheepish nod of the head. ®

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