Update No.7

This report will be slightly shorter than usual, as this afternoon was largely taken up with highly technical discussion of case law; the lengthy discussions usually crystallised into short conclusions, and it is those conclusions that I shall record.

The judge confirmed that it was not an applicable argument to say that “we should never have allowed personal service companies to come into existence in the first place”. The court must consider the reality as it is now, not the reality as might or even as it arguably should have been.

There was a lengthy discussion of the Lunn Poly case. This case will be familiar to many readers: it dealt with a case where one group was taxed more heavily than another in a given sector (travel). The question arose as to whether or not IR35 was aimed at a tax avoidance scheme.

Barling said that it was not. The judge said that Plender might say that incorporation is a tax avoidance scheme much the same as the various schemes that spring up overnight and get shut down in each budget, but 300 years old. IT was legitimate for Government to have a policy implementing a fiscal change removing this right to incorporate. After lengthy discussion, it was agreed between Barling and the Judge that the argument boiled down to a modern-day version of Morton’s Fork.

If IR35 is aimed at tax avoidance, our argument is proportionality – the use of a sledgehammer to crack a nut.

If IR35 is not aimed at tax avoidance, then the Lunn Poly case applies – and this supports us.

Then timing was discussed.

Barling had originally planned to sit down this morning; however he now plans to sit down tomorrow morning. My own view is that this is simply circumstance. The judge said it was his fault for interrupting so much – and there may well be some force to this; however the judge had only received the skeletons Monday lunchtime and had a prior engagement Monday evening; so he had only managed to read a tiny amount of relevant material before the case started. This caused his multiple interruptions and the clarifications he sought yesterday. Today having had a chance to read material in some depth he was clearly in command of the material and far less edgy than yesterday. I doubt if such an evidently bright man felt at all comfortable presiding over a case he didn’t have much feel for at the time (yesterday) and that carried over into the courtroom. Actually I like the fact that this happened. It reminded me that we are all human – even high court judges.

So the case will overrun. Yesterday Plender said there was no way he could make an extra day before Monday 26th. Today he said – with much pain – that given the imminence of April 5th, he was prepared to upset his clients and sit on Monday. Everyone agreed that the inevitable overrun would be on Monday 19th. So there will be a fourth day then.

The judge said that the whole thing was a matter of characterisation. Our world view was small company vs big company. The Revenue’s world view was contractors as outsourced employees versus permanent employees. Which world view he took would be likely to decide the case.

My view: if he agrees with our world view, State Aid is looking good. But there’s a chance he won’t.

The judge raised (again) the matter of targeting. There was again some lengthy discussion at the end of which it was agreed that the key question was: is there competition between our small companies and the bodyshoppers’ big ones.

Barling raised fiscal migration. He said that we had evidence of a thousand contractors who had gone from the UK to Ireland as a direct consequence of IR35.

There was then a general discussion about international factors and inter-state trade within the European Union.

There then followed a genuinely fascinating discussion about freedom of movement. Dry, legalistic, esoteric in places it may have been, but I was gripped. I’m not sure I’m going to do it justice here, but I’ll try.

To prove our case under Freedom of Movement we need to establish:
- that IR35 is a discouragement of the freedom of workers or services or establishment between European States
- that IR35 is an “obstacle”
- that IR35 is not “justified”.

Justification is a technical term with a different meaning in regard to Freedom of Movement to its meaning in regard to State Aid. Under the Freedom of Movement doctrine, a measure is “justified if”
- if is non-discriminatory in terms of nationality of a European citizen; or it is discriminatory but in a specific narrow set of circumstances (that aren’t relevant to this case).
- If it is imperative – if there is a pressing reason of public interest for its introduction
- If it is proportionate – it is effective and not excessive.

Note the Boolean operator for this justification stuff is “AND”. So to prove our case under Freedom of Movement we have to show that it discourages free movement and is in itself an obstacle to movement. Then the Revenue need to show all three of the above conditions. An obstacle is a direct restriction of movement or an indirect restriction of movement insofar as the measure makes it less attractive to undertake certain forms of economic activity.

And just as we were getting into it, 4.15 struck and we stopped.

So, how are we looking now we’re (effectively) halfway through?

We’re looking as we always looked – 50/50. Whatever our amateur views on whether we’re behind or ahead may be, only the judge really knows the scores on the doors – and he’s not telling until he delivers judgement.

There’s a rumour that he may take anything up to a week or more. So please don’t expect a judgement or an indication of which way he’s going to go this week or early next week – it isn’t going to come.