Contractors go to court over IR35

The 8000-strong Professional Contractors’ Group (PCG), which has been fighting the tax change which takes effect today, will apply for judicial review in the High Court, then the European Court.

If successful, this would force the UK government to abandon the tax change, although the process could take up to two years.

PCG political director David Ramsden said the group’s lawyer, Gerald Barling QC, will apply for judicial review early in May, citing issues relating to European competition law.

“We’ve been advised by our QC, who is a leading specialist in European law, that the government could well be out of order in introducing the legislation around IR35,” said Ramsden, adding that he is “fairly confident” of obtaining leave for judicial review – permission from a judge to allow the case to be heard.

Such a review would probably take place in the High Court late this autumn, and could then be referred to the European Court of Justice in Luxembourg.

However, an expert in IT law said the application to challenge the legislation may be too late. Rob McCallough, partner and head of the IT group at law firm Masons, said judicial reviews must be brought promptly.

“Generally, if you haven’t got your challenge up within three months, you will have a difficult time,” he said.

IR35, which could cost affected contractors about a quarter of their net income in extra tax, was announced in last year’s March Budget. It hits freelancers charging clients through a company, and paying themselves largely in dividends, which are taxed less heavily than wages.

McCallough added that challenging the tax change under competition law seemed surprising. “This comes down to running a scheme to reduce your taxes,” he said. “It doesn’t reduce your competitiveness as such. The only way they could argue that is by saying contractors can operate that way in other European countries.” special feature: IR35 – will the exodus begin?

Related reading