BACKGROUND

The Professional Contractors Group
The Professional Contractors Group was formed in May 1999 by a group of independent contractors mainly from the IT and engineering sector, who saw that the Government's Budget proposal, IR35, was likely to make it impossible for many small businesses to continue operating.

At the time, these contractors, working in the new flexible knowledge-based economy had no representative body which promoted or defended their interests.

The PCG operates as a web-based organisation sharing information and intelligence through its web site (https://www.pcgroup.org.uk). Its members have been actively involved in local political and media campaigns against IR35, making some media and politicians, including a Government spokesmen, pay tribute to the scale and persuasiveness of PCG's members.

In February 2000, the PCG held an Internet ballot of its members, when they over-whelmingly voted to retain PCG as the representative body for independent contractors. While IR35 continues to dominate the PCG's activities and the lives of its members, the group, under the current Chairmanship of Gareth Williams, has a broad remit to give contractors a collective voice on all issues that affect them and their businesses.

The PCG is now the fastest growing representative body in the country with a membership of 12,000.

IR35
IR35 - Inland Revenue's press notice number 35 - was released after the Budget in March 1999. It suggested that the Government intended to clamp down on people who left employment on a Friday to start in the same job at the same company on a Monday - but this time operating through their own service company rather than as an employee.

However, a few weeks later when the detail was announced, it was clear that the Government's intention was much broader and it was targeting all small businesses in the knowledge-based sector.

The proposal, which came into effect from April 6 2000, means that many small companies, mainly in the IT and engineering sector are unable to operate on equal terms with their larger competitors as their turnover is treated - for tax and NI purposes - as salary. This means they are unable to operate as the legitimate businesses they are because they are unable to make or retain profits, unable to allow business expenses such as training and computer equipment against tax, and cannot therefore invest for the future or plan to grow and develop.

IR35 states that, in order to be treated as a business, these companies must pass the case-law 'self-employment tests' which were not devised for businesses in the knowledge-based sector, but are more suitable for manual or skill-based traditional businesses.

In summary, IR35 treats small businesses in the knowledge-based sector as 'disguised employees' for tax and NI purposes, thereby preventing them from operating on similar terms to their larger competitors.