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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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