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19th March, 2001 - Judicial Review, Day 4
The fourth day of PCG’s judicial review began with Counsel
for the Inland Revenue, Richard Plender QC, continuing with
his arguments against the PCG case.
The morning session was concerned primarily with arguments
of “fact”. The judge took the role of “devil’s advocate”, and
asked Plender to clarify the Revenue’s position over points
such as competition and freedom of movement.
The judge suggested that contractors should be able to see
the client-agency contract, and that perhaps there could be
an industry-wide “non-IR35” contract brought into use.
The judge was critical of Inland Revenue’s internal guidance
to inspectors in assessing IR35 status. He was concerned that
whereas the IR35 legislation (and indeed, the Revenue’s own
submissions to the court) say that all the circumstances affecting
the contractor and the contract should be taken into account
where assessing IR35 liability, the inspector’s guidance tells
them to only use the contracts. The Inland Revenue had no response
to this criticism.
Justice Burton seems satisfied that competition exists between
contractors and the larger service providers, in spite of Plender’s
best efforts to argue that this was not the case.
Plender explained to the court that IR35 is a measure to stamp
out tax avoidance through limited companies, quoting headlines
in newspapers and a single letter from an accountant as evidence.
He dismissed the Institute of Chartered Accountants of England
and Wales (ICAEW) report into IR35, that was highly critical
of the legislation.
The morning session finished on a positive note, as Plender
seemed to struggle to challenge the PCG on points of fact.
However, this case hinges on points of law, and this
was the topic of the afternoon session.
Plender aimed some blows at the PCG case. IR35 may be damaging
and unfair, but this does not make it illegal. He attacked the
PCG case on two fronts:
- IR35 is not a specific, targeted piece of legislation aimed
at favouring one industry sector or individual company over
another. He asserted that IR35 is a general measure. IR35
legislation does not name a particular industry sector, so
even if it happens to affect a specific category of businesses,
that does not make it specific under law. It therefore cannot
be State Aid to a sector or company.
- Even if we could show that IR35 only affects a particular
sector or company, Plender used several examples from European
law to show that this does not necessarily make it illegal.
For example, the Inland Revenue maintains that IR35 is aimed
at preventing tax avoidance. It is aimed generally at all
companies with an “employee-like” relationship, it is not
*intended* to help the big service providers squash contractors
out of the market, and therefore it is not illegal. The judge
seemed to agee and drew a parallel with “green” legislation.
Carbon tax is not seen as State Aid to non-polluting companies,
because it is “intended” to help the environment. The fact
that it raises lots of money for the Treasury and may put
laundrettes out of business is immaterial.
Plender will deal with the issue of Free Movement tomorrow
(Tuesday). As a taster, the judge suggested that Plender ought
to accept that contractors *might* decide not to come to the
UK or leave the country due to IR35. Plender tried to argue
this point without making much impression on the judge. The
case is expected to finish at the end of Tuesday.
It needs to be borne in mind that the onus is on the PCG to
prove that IR35 is illegal under European law. The Inland Revenue
is “presumed innocent” for the purposes of this hearing. Plender
will spend around an hour on Tuesday morning outlining the Inland
Revenue’s defence of the Freedom of Movement argument, before
both counsels will have the opportunity to reply to points raised
in the case.
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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