25th August, 2001 - 27/01 PCG Launches Appeal

PCG Launches Legal Appeal Against Government
Following an appeal to members, the PCG will continue its legal fight against the Government and IR35 with an appeal to the Court of Appeal later this year.

PCG members have pledged sufficient funds to ensure the legal battle continues. Members who wish to contribute, or honour their pledges can do so here:

https://www.pcgroup.org.uk/members/legal/legalpledge.html

In the judicial review hearing in March 2001, the PCG argued that IR35 was illegal under European law as it was unfair state aid and created a barrier to free movement and should be struck down. Although the High Court was highly critical of the Revenue’s action, it found that IR35 was not contrary to European law. During the five day judicial review in the High Court the judge concurred with the PCG on every finding of fact including the key issues that contractors are in competition with larger consultancies and that IR35 would distort the marketplace. He was also critical of the Revenue's selective use of the employment tests to assess whether a small business fell inside or outside of IR35 and the Revenue's guidance was described as inappropriate, unclear, inflexible, inaccurate and unhelpful. The judge also made reference to the unnecessary emotive and 'colourful' language in the original press notice which set the tone for a hostile debate.

Background
During the actual judicial review hearing in March, the Court indicated it agreed with a number of PCG's points which had previously been contested by the Revenue. They included:

• Certainty many of contractors will be taken out of 'certainty' and put into a position of 'uncertainty' as to whether their contractors fall within IR35
• Financial flexibility Unaffected companies have greater flexibility in arranging their financial affairs than those affected by IR35
• Competition there was real competition between small contracting companies and larger body shops
• Moving overseas Some contractors will move overseas or others will be deterred from coming to the UK
• Multiple clients - seeking work opportunities from multiple clients would put a company outside IR35.
• Employment rights there was a strong case for employment rights for those caught under IR35. the employment rights issue could extend to employees of bodyshops selling them into clients.
• Freedom of movement - the freedom of movement issue is potentially an easier hurdle to cross - doesn't depend on sector or competition.
• Evidence of competition - fairly convinced of a competition element in IT and asked for additional evidence of other sectors. Engineering evidence was provided to demonstrate the point.
• Same contract different opinion - the example of one contract which received a 'yes' and a 'no' from different IR offices. It took 4-5 months to get a decision (28 day limit) and the 'inside IR35' was an obvious cut and paste job which showed that the assessor hadn't read the content.
• Restrictive - the application of IR35 should be less restrictive.
• Tax mitigation the different between tax mitigation (ie making arrangements in accordance with tax regime after you've set up a business for other reasons) and tax avoidance (ie setting up a business/arranging your affairs in order to maximise tax benefits). Nothing wrong with setting up companies and using them to mitigate tax.
• Emotive language in press release - there was criticism of the use of emotive language, such as 'disguised employee' in the original IR35 press release which the judge described as 'wholly regrettable and unnecessary'
• Friday to Monday - there should be no prejudice in the assessment procedure because the first client of the contractor had previously been an employer.
• Expert competition evidence - judge indicated that he could see the force of argument when supported by our expert evidence, and that the IR were relying on assertions not supported by evidence.
• Freedom of Movement - IR must show that there is an overriding reason of public interest - which cannot be an 'economic one'.
• Proportionality - if the objective was to prevent Friday-to-Monday, it's a sledgehammer to crack a nut.
• Incorporation - there was nothing critical in terms of people taking advantage of laws allowing them to incorporate.
• Implementation - the judge was critical of the manner in which the IR was going about implementation in practice

For further information about the PCG's appeal see:

https://www.pcgroup.org.uk/members/legal/index.html

For further information about the judicial review see:

http://www.ir35update.co.uk

meetings to get involved

https://www.pcgroup.org.uk/threads/wwwthreads.pl?a=l&f;=meet

Susie Hughes
(Head of Executive Services)

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