IR35 latest: Contractors face tax chaos

Judge warns that the PCG has only presented a case for IT workers, not all contractors

The judge presiding over the judicial review of the government's controversial IR35 tax rules indicated on Wednesday that he might decide that IT workers, but not other contractors, should be exempt from the rules. Mr Justice Burton told the Professional Contractors Group (PCG) that it had not proved that all contractors would be adversely affected by IR35. The PCG, whose evidence to the judicial review has concentrated on how IT contractors are disadvantaged by IR35, claims that the tax is illegal because it puts an unfair burden on self-employed contractors, who are effectively treated as employees of the firm that contracts them. Richard Robson, an IT worker, believes that the Inland Revenue's tests for deciding if someone is a self-employed contractor are out of touch with reality. "The Revenue asks whether you provide your own tools when you work on-site," he said. "Well, most companies won't let you plug your laptop into their secure network, so in most cases -- for example if you're a mainframe programmer -- the only tool you provide is your brain. Under the Revenue's rules, if you don't provide "tools" you can't be a contractor," Robson said. The PCG will continue to present its evidence to the judicial review on Thursday, and intends to widen the scope of its evidence to cover all contractors. The hearing is expected to continue until at least the beginning of next week. Under IR35, which came into force in April 200, the turnover of an individual or a small company that carries out IT contracting could be treated as salary for tax and National Insurance (NI) contributions by the Inland Revenue. The PCG claims that this will put small contractors at a considerable disadvantage compared to large consulting groups. It believes that thousands of IT workers could flee the UK to escape IR35, damaging government plans to make Britain a leader in the Internet Economy. On Thursday morning, Mr Justice Burton suggested that IT contractors who were forced by IR35 to be treated as employees could have a case for claiming employment rights against the company employing them. COMMENT
Closing the loopholes in IR35

The laws to discourage tax dodging, should not go so far that they make it better for people to leave the country and work offshore. Guy Kewney isn't sure whether abandoning IR35 altogether is the answer -- but it certainly needs some serious tidying up. For complete business coverage, see ZDNet UK's Enterprise Channel. Take me to ZDNet's Small Business Special. Have your say instantly, and see what others have said. Click on the TalkBack button and go to the ZDNet News forum. Let the editors know what you think in the Mailroom. And read other letters.