IR35 upheld, but judge faults Revenue's lack of research

Government's real small firms policy, Commentary - Times 2nd April 2001 by

Patience Wheatcroft.

THE GAP between the pious politically correct rhetoric in support of small business and the oppressive bureaucratic reality is epitomised by the IR35 saga.

Yesterday's High Court judgment inevitably upheld the Government's right to enact tax-avoidance legislation. More importantly, it showed how the Revenue is prepared to crush large numbers of tiny businesses with hardly a moment's thought in order to attack perceived tax abuses by those who disguise employment as contracting.

Mr. Justice Burton noted in particular that the Revenue had made its first regulatory impact assessment "without any, or any adequate research". In other words, Whitehall was cynically paying lip service to safeguards for taxpayers. The Government's bleeding heart is as cold as stone. The effects of IR35 are palpably perverse. Many of the tiny, sometimes one-man service businesses affected are IT specialists.

The judge acknowledged that some would choose to go abroad because of the impact of IR35 on their cashflow, at the very moment when another part of

Whitehall is speeding up immigration rules to lure much-needed IT professionals from India.

Tax officials are innately suspicious of the self-employed, who are thought to be tax dodgers unless proved innocent. So Whitehall's heavy hand bears down continually on the very small firms the Chancellor pretends to encourage. Only a real change of heart can cure that, not a court.