Judge puts eight key questions to both sides in IR35 review

This morning's session (March 19) of the PCG's judicial review began as the judge declared he had a series of 8 questions to put to both the Inland Revenue and the PCG having spent the weekend reading through the evidence both parties had supplied him with.

The Judge's questions were as follows:

1/. Is the effect and intent of IR35 to eliminate the avoidance of tax and NICs?

2/. Will many workers with personal service companies be required to pay more to the Revenue?

3/. Roughly 80% of PSCs are in the sectors referred to in the relief sought

4/. PSCs will experience uncertainty as a result of confusion as to what will and won't fall under IR35

5/. PSCs will be in competition with those larger companies which remain unaffected by IR35

6/. Those unaffected by IR35 have an advantage in tax flexibility and time

7/. IR35 will make some of those PSCs leave the country and will stop others wanting to set up in the country

8/. IR35 may have effects on interstate trade.

Mr Plender QC acting on behalf of the Revenue answered 1/.Yes, 2/.Yes, 3/.No, 4/.No, 5/.No, 6/. Yes, 7/.Yes (some) and 8/. Yes (comparable to previous findings).

Mr Barling QC for the PCG answered 'Yes' to all of the questions.

Mr Justice Burton announced that he believed Mr Plender would try to argue that the differences between them were factual but that he 'did not see it as such'. He also spoke for some time about the Human Rights part of the PCG's case against IR35 but there was no conclusion to this argument and this is expected to be concluded over the next two days. The judge also said that IR35 attacked intermediaries who pay greater amounts of tax than if they were directly employed by the intermediary. The Judge also made the proclamation that 'independent contractors' was not a relevant term for those the court was discussing and expressed his wish for them to be henceforth referred to as 'service contractors'.

There was also some debate over the findings of the Regulatory Impact Assessments. Looking to Mr Plender QC and the Revenue bench in general, he asked them "What was the deciding factor between your first draft in which you more or less stated that 'those to be hit by IR35 will all die and good riddance' and the second draft that said 'many of these companies will choose to stay in business and good luck to them'?" At this stage there was no fundamental defence from the Inland Revenue of how this had come to pass.

The Judge went so far as to suggest an imaginary case study himself, asking Mr Plender about the possibility that IBM might one day decide to hire someone and have to make a choice between a service company and a bigger, IR35 immune company. "It doesn't need to be disputed that the two will be in competition," the Judge said, "but the fact is that the contract for the service company could come under IR35. If you make it more difficult for the service company then they will not be able to operate properly against their competitors." Mr Plender attempted to construct an imaginary situation in which he argued he would not be in competition with a big legal firm if a Greek Telecoms company approached him for legal advice but it ended up showing there would be a competition element. "With operating a service company under IR35, you do so with an uncertainty no-one can really be sure of and that's a conclusion you ought to be accepting," the Judge told Mr Plender.

The judge finished by announcing that he would like to be furnished with more information concerning the definition of 'negative state aid' and 'selectivity' as is concerned by the case.

--

Richard Powell, UKTECH