3rd April, 2001 - JR Ruling
Members will be aware that we received a ruling on the JR hearing
today.
Mr Justice Burton�s judgement extends to 101 paragraphs.
In summary, his judgement is that the IR35 legislation is not
illegal under EU law. However, on the factual arguments between
the PCG and the Revenue, the judge overwhelmingly agreed with
our evidence. He ruled that, as the PCG has always claimed,
we do compete with larger companies who are exempt from IR35
but who provide the same services as us. He also found as a
fact that the effect of IR35 will be that some contractors may
move overseas and thus trade between member states of the EU
will be distorted.
It has obviously been an extremely busy day for all concerned
� and for the PCG webserver, which has seen record page requests
and has on occasion, struggled with the load. We apologise that
the service has intermittently been unavailable for this reason;
but already things are calming down now, and we are back to
normal.
The full judgement
is available in the members
Members particularly interested in the points on guidance should
look at paragraphs 47 to 51 of that document; a summary is included
below.
Although the judge found against us on the technical points
of law presented, there were some very positive aspects to the
judgement. The judge criticised the Revenue�s published guidance
which he said was often �neither clear nor helpful�. He emphasised
that the Revenue had a duty to apply the common law of employment
and criticised their statement that contracts over one month
on standard terms will always be caught by IR35. Each contract
must be considered on its merits and such a blanket rule was
inappropriate. He also criticised the Revenue�s emphasis on
the contents of written contracts � particularly the agency/client
contract which the contractor may never have seen � to the exclusion
of other evidence. Such contracts were only part of the picture,
he ruled. He also dealt with substitution: �There appears to
be�a too inflexible approach by the Inland Revenue�[it] would
not be right to make an absolute statement, as the Revenue appears
to do�that the need to obtain the client�s permission necessaril
y negates the existence of a right to substitution, and/or points
to employment�.
He said that the issue of being in business on ones own account
was key. �The question of whether the [contractor], prior to
that engagement, [is performing] or will subsequently, after
the termination of that engagement, perform services for others,
and is to be construed as carrying on business on his own account,
is and must be a central consideration�.
He also criticised the IR35 press releases. �It seems�to have
been assumed, without any or any adequate research, that all
service companies fell within [the Friday to Monday scenario]�.
�It appears to me wholly regrettable and unnecessary that such
colourful language was used in the first press release.
However although the judge found in our favour on these disputed
factual issues, he found against us on points of law. The State
aid to our larger competitors was, in his judgement, not sufficiently
specific to a particular industry to be unlawful under EU law.
The legislation may affect our sector more than other sectors
but that, he decided, is an incidental effect of legislation
which is framed in general rather than specific terms.
As regards freedom of movement, the judge ruled that the legislation
did not discriminate on grounds of nationality and was not therefore
illegal under EU law. He added that even if he was wrong on
that and IR35 did represent an impediment to free movement,
it was nevertheless justified as an anti-tax avoidance measure.
It is clear to all that although we have not got rid of IR35,
the Judicial Review has moved the goalposts significantly �
and moved them our way. Businesses that were assessed as caught
by the Revenue must urgently reconsider their position. As today�s
issue of the Evening Standard says, the Revenue faces �chaos�.
PCG is urgently seeking a meeting with the Revenue to determine
the best way forward in the light of the judge�s comments.
Members wishing to get up to speed on the ruling may find
it easier to refer to some of the comments published in the
JR discussion
forum, where some interpretation of the ruling is now available
(comments from Kevin Miller & NeilW).
Susie Hughes
(Head of Executive Services)
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