Contractors must wait for IR35 decision

Founders of personal service companies were yesterday left with an anxious wait when a High Court judge decided to reserve judgement until later today on whether or not IR35 will undergo a judicial review.

After hearing arguments put forward by Gerald Barling QC on behalf of the Professional Contractors Group (PCG) and Richard Plender QC for the Inland Revenue, Justice Gibbs chose to delay his decision over a judicial review of the controversial tax measures.

IR35 regulations, which came into force in April, remove many of the tax advantages previously held by contractors who operated through personal service companies. The court reconvened at 10.30am this morning and a judgement is expected later today. The ruling can be subject to appeal.

The PCG contested that IR35 is unfair because it taxes one-person businesses more harshly than other organisations, which it believes amounts to ‘state aid’ for large IT contracting companies. The group has also said IR35 discourages contractors from trading in the UK and that it contravenes the Human Rights Act.

However, the Inland Revenue claimed the legislation ensures everyone who meets the accepted definition of an employee pays tax on broadly the same basis.

It argues that about 90,000 people working through service companies would otherwise be correctly taxed as employees.

The Revenue claims they earn on average £50,000 a year, and of that they pay an average of 21 per cent in tax and National Insurance Contributions, compared with the 35 per cent which an equivalent direct employee would pay.

First published on accountancyage.com