Inland Revenue prepares for IR35 showdown

The fight between the UK government and IT contractors will today reach new heights when the Professional Contractors Group (PCG) meets the Inland Revenue at the High Court.

IR35 regulations, which came into force in April, remove many of the tax advantages previously held by contractors who operated through personal service companies.

Representatives of the PCG at today’s hearing will seek a judicial review of IR35.

The group contests 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 PCG has also said IR35 discourages contractors from trading in the UK and that IR35 contravenes the Human Rights Act.

However, the Inland Revenue claims the legislation will ensure everyone who meets the accepted definition of an employee will pay tax on broadly the same basis.

It argues that about 90,000 people working through service companies who 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.

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