IR35 High Court showdown begins

In a hearing lasting up to three days, the PCG will argue IR35 is unfair because it taxes one-person businesses more harshly than larger organisations, effectively providing ‘state aid’ to large IT contracting companies. The body, represented by barrister Gerald Barling QC, believes this contravenes European Union competition law.

IR35 regulations came into force in April last year, and removed many of the tax advantages previously held by contractors who operated through personal service companies. The PCG argues the legislation is forcing IT contractors to seek employment outside the UK, a claim that has been vehemently denied by the Revenue.

The government says there is no evidence that a significant number of IT consultants were moving overseas as a result of IR35 and that the rules ensure everyone who meets the accepted definition of an employee pays tax on broadly the same basis.

The IR35 debate mobilised contractors throughout the UK, leading to the formation of the PCG, which now boasts 10,000 members.

Today’s case follows the PCG victory in a hearing in October last year.

The PCG will argue IR35 legislation should be scrapped for the following reasons:

  • it is incompatible with EC law as it constitutes state aid to large consultant companies prohibited by EC Treaty and does not have the approval of European Commission, and is therefore illegal.
  • it infringes articles of the EC Treaty by creating unjustified obstacles to the free movement of workers, the right of establishment and the freedom to provide services within Community.
  • the legislation is in breach of the general principles of law and Human Rights provisions.

The Inland Revenue will defend IR35 legislation along these principles:

  • its purpose ensures everyone who meets the accepted definition of an employee pays tax on broadly the same basis.
  • IR35 does not attack entrepreneurs or those who run their companies, nor is it targeted at the IT industry.
  • the measure stops full time employees posing as contractors to avoid paying tax at the 35% rate.


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