High Court dismisses IR35 challenge on all three legal grounds

BRITAIN: IT consultants' tax plea rejected

Financial Times; Apr 3, 2001

By PATRICK JENKINS and MICHAEL PEEL

The High Court yesterday dismissed an attempt by information technology consultants to reverse a law that deprives them of many of their traditional tax advantages. The judge, Mr Justice Burton, ruled that the consultants had failed to show that the legislation, known as IR35, broke European law and

Britain's Human Rights Act. The ruling marks an important victory for the government in the long-running battle over IR35, although the judge criticised the quality of the Inland Revenue's published guidance on who would be affected by the law. The government introduced IR35 to crack down on alleged tax avoidance by consultants who operated through one-person companies even though they were de facto employees of their clients. The

Revenue estimates that the changes, which hit the IT sector hardest, will affect about 90,000 people and raise an extra Pounds 350m (Dollars 497m) in tax and national (employee) insurance a year. The judge ruled out a three-pronged legal challenge to IR35 by the Professional Contractors Group, a body set up by consultants to fight the law. He dismissed the PCG's arguments that IR35 constituted illegal state aid, a restriction on the free movement of consultants and an unreasonable confiscation of property under the Human Rights Act. He told the PCG: "Clearly your case was arguable and fully justified the five days we took to consider it. But I conclude that, having raised those three issues, you failed on all of them." Gareth

Williams, PCG chairman, said he felt the case had advanced his group's cause despite the defeat on all three legal points and the judge's refusal of leave to appeal against the verdict. The Revenue said the verdict was as it had expected.