January 9, 2002—UK organizations that make use of independent contractors will be affected by the decision of a recent Court of Appeal, in which judges affirmed the legality of the IR35 tax.
IR35 treats small businesses in the knowledge-based sector as ‘disguised employees’ for tax and NI purposes, thereby preventing them from operating on similar terms to their larger competitors.
The court recognized that the dividing line between employment and business for small, knowledge-based businesses is “often debatable.” The Professional Contractors Group (PCG) took the Government to the Court of Appeal in December 2001 to seek to prove that IR35, the controversial tax on small, knowledge-based businesses, is illegal under European law. The Appeal claimed that IR35 contravenes European legislation on two counts—illegal state aid and a barrier to free movement—and therefore should be removed from the Statute Books.
The Professional Contractors Group, formed to lobby against the IR35 proposals, is a representative body for independent contractors from many disciplines in the knowledge-based sector, including IT and engineering. The PCG’s aim is to work for recognition of independent contractors as a genuine and valuable sector of the British economy, generating wealth and employment, and providing industry with a flexible workforce. The PCG posts regular statements about the IR35 case.
