An IT contractor has appealed against a tax judgment that would see him paying almost £100,000 extra in taxes, and which could have wide-ranging consequences for contractors struggling with IR35.

IT contractor Jon Bessell was in the High Court on Friday to overturn a decision forcing him to pay £99,000 in extra taxes under the controversial tax rule.

The case relates to three contracts on three separate projects, from January 2000 to January 2003, in which Bessell, who is sole director and 50% shareholder of Dragonfly Consultancy, worked for the AA and DPP International.

Key points of Bessell’s defence at the Special Commissioners included that he never billed for holiday time, nor received payment, and worked for one other client during the period of his contracts with the AA.

The commissioner, however, concluded that Bessell was still effectively employed, and that his company arrangement had merely allowed him to avoid the tax and NIC consequences of employment.

Special Commissioner Charles Hellier ruled that there was ‘nothing which points strongly to ... Mr Bessell [being]... in business on his own account’, and therefore he would be caught by IR35.

Tax experts will be watching the case, which is funded by the Professional Contractors Group, with much interest.

If the appeal is rejected, the ruling could undermine much of the successful defence against IR35 that has been established by PCG in numerous cases since IR35 came into force, the group said.

IR35 was introduced to prevent employees from setting up their own companies and then charging their services to their effective ‘employer’, reducing their tax and NIC bills.

A ruling from the High Court is not expected until mid-summer.

Following the appeal on Friday, a spokesman for the PCG said: ‘If the judgement of the Special Commissioner is allowed to stand, a lot of contractors will have to look at their situation very carefully as the steps they have taken to stay outside IR35 may no longer be valid.’

Dragonfly, based in Wiltshire, specialises in IT testing services.