Grocer comparison used to argue IR35 breaches European competition law

Competition and IR35 – IR35 is anti-competitive.

Shame Thatcher's not around…

Take two grocers, one with nationwide operations and another with localised operations, or even just one shop.

For the Government to discriminate between the two for tax purposes with the deliberate intention of giving the smaller grocer a greater tax burden overall than the national operator could be unfair and in breach of European Law.

Take two consultancies, one with nationwide or even worldwide operations and offerings in terms of shoals of cannon fodder and another offering but a single or a few very specialist 'experts' in their respective fields.

For the Government to discriminate between the two for tax purposes with the deliberate intention of giving the smaller supplier a greater tax burden overall than the national operator could be unfair and in breach of European Law.

Thus, it is the case that IR35 is anti-competitive.

From experience, the large consultancies cannot compete on rate with the freelance suppliers. This is because the freelance suppliers offer economies of scale. In addition to this, the freelance suppliers offer a higher level of specialisation. This is why the large consultancies have lobbied for years for tax legislation such as IR35 in the mistaken belief that raising the tax burden on freelancers (their competitors) in such an anti-competitive manner would ease their own recruitment and retention problems, not to mention reduce the competition against their services.

Government proceeding with the provisions of the finance bill 2000 and in particular, that part which relates to IR35 would result in an anti-competitive climate that favours the larger suppliers.

On the one hand the freelancers can supply at a lower cost and thus price.

On the other hand, the large consulting houses cannot recruit/retain staff to then supply on as cannon fodder.