IR35 protestors win first round of legal challenge

The High Court today gave protestors against the IR35 tax change permission to have it judicially reviewed. It is the first step towards getting the measure repealed, and the government demonstrated its intention to fight all the way by producing legal arguments against the petition.

The arguments, which gave a strong indication of the government's intended defence, were based largely on the belief that contractors and the like could not be considered businesses. They were given short shrift by the judge and a date of 5 February next year has been agreed with the Inland Revenue for a full High Court trial.

The importance of this date, as Gareth Williams, chairman of the Professional Contractors Group (PCG) told us, is that it falls before the end of the tax year. Even though IR35 is already law, if the three judges find against it, it will be struck out of legislation and those affected will not be required to pay the extra tax the measure demands. In essence, it would never have existed.

Williams said in a prepared statement: "IR35 is unfair and unworkable, now we are confident that we will prove that it is also illegal. The government decided to argue against our case today - and had its arguments thrown out. IR35 should now be suspended until this issue is resolved, and we ask the government to consider very carefully whether it should waste more tax payers money defending the indefensible."

Spokeswoman for the group Susie Hughes spoke to us from inside chambers and said: "We find it especially ironic that we are having to take the government to court in order to protect small businesses when it has said it wants to do everything it can to help them."

Mr Gerald Barling QC successfully argued that the PCG should be granted permission for a judicial review as it contravened European legislation. In particular that it is a form of illegal state aid to larger firms, that it goes against EU rules concerning free and fair trading and that it goes against the new Human Rights Act (confiscation of property).

IR35, if you don't know, basically treats contractors' turnover as salary, with the tax and national insurance implications that involves. Hence many people in engineering and the IT industry cannot make or retain a profit or offset equipment, training etc against tax. The government sees such people as exploiting a loophole, the contractors sees themselves as a prime example of free trade principles. ®

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