15th March, 2001 - Judicial Review, Day 3

At the start of Day 3, counsel for the PCG, Gerald Barling, was still discussing the legal points of the PCG case. Our legal advisers always believed that given the complexity of the case, the hearing could take at least five days. The hearing temporarily adjourned at the end of Thursday, to be resumed on Monday, 19th March. Contrary to allegations from unnamed sources in the Press, the PCG is *not* deliberately dragging out the hearing. Everyone in the PCG judicial review team is pushing for as early a result as possible. The courts initially allocated three days to the hearing. The case is overrunning because of the detailed nature of the judge’s questions to counsel.

The major news of the morning session concerned the “Nuclear Option”; if the Inland Revenue thinks you are an employee, your client should treat you like an employee, with all the benefits you would expect from permie employment. The Inland Revenue shouldn’t be able to have its cake and eat it. If you are a “disguised employee” for tax purposes, you should have the employment rights to go with it. The judge announced in court this morning that he agrees with the PCG on this point, thus providing the plutonium for our nuclear device. Holiday pay anyone?

This does not mean that we all have to become employees, but clients should now be much happier to consider non-IR35 contracts, should the legislation stand.

Adding to our case, the judge (who regularly sits on employment tribunals) stated that in his opinion, the employees of the large outsourced service providers are ALSO in effect the employees of the clients. Does this mean that the Inland Revenue are the biggest “disguised employer” in the country?

Taking these two statements together, this represents a significant levelling of the playing field between contractors and the major service providers.

Gerald Barling finished presenting the PCG’s case at 2:40pm on Thursday.

Counsel for the Inland Revenue, Richard Plender QC, opened by challenging the PCG’s case on two of the three grounds for relief. The first of these is “State Aid”. Plender said that IR35 could not be state aid to large companies because it is not specific enough in its effects. Put simply, the Inland Revenue believes that for IR35 to be state aid, it would have to effect *all* small companies in the “knowledge-based” sectors.

Plender asserted that not only is the definition of “knowledge-based” too unclear to prove any kind of state aid, but that not all “small” companies are affected by IR35. Plender seemed less forthright concerning the matter of “Freedom of Movement”. The PCG alleges that IR35 is illegal because it is an obstacle to the Free Movement of workers, services and companies under EU law. Plender will challenge the PCG’s definition of “obstacle” next week. He will also attempt to show that in fact IR35 is not a deterrent to contractors from other EU countries coming to work in the UK.

The case will continue on Monday and is likely to conclude on Tuesday.

The PCG is posting detailed reports online after each session:

http://www.ir35update.co.uk

and is storing the archives of these reports on the forum notice board.

Susie Hughes
(Head of Executive Services)

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