UK government ‘foresaw’ IR35 effects

The UK government knew when it created IR35 that it could result in the deaths of tens of thousands of small businesses, the High Court heard today.

Branding the hated contractors’ tax changes as “misconceived”, Gerald Barling QC, representing the Professional Contractors Group (PCG), said that from the outset the government foresaw that most of an estimated 90,000 affected companies would close down.

“The effect of IR35 is seriously to disadvantage the affected companies in relation to their competitors to the extent, in fact, of forcing many small contracting businesses to wind up or leave the country,” he said.

“Many other contractors, both inside and outside the UK, have been, and will be, deterred from setting up businesses which might be affected by IR35,” he added.

The PCG claims that IR35 breaches the European Convention on Human Rights because it unfairly discriminates against small businesses.

Barling said: “In sum, IR35 is liable to cause significant and damaging distortions of competition and movement of businesses and workers in relation to the UK knowledge-based contracting industries.”

The hearing began today and is expected to last until Thursday, with a ruling coming as soon as next week.

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