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Decision coming soon in IR35 appeal

High court to decide the fate of the controversial tax law for tech freelancers
Written by Graeme Wearden, Contributor

The Court of Appeal will announce its ruling in the long-running IR35 judicial review at 10am on Friday, determining whether the controversial tax law, which its opponents claim is damaging the UK technology sector, remains in place.

The Professional Contractors Group (PCG) -- which has led the battle against IR35 -- took its case to the Court of Appeal after losing a judicial review back in April. It wants to see the tax overturned.

Despite its earlier failure, the PCG is hopeful of success this time. "PCG's members decided to appeal this decision after the High Court had found in the Group's favour on the findings of fact, but ruled against it on a point of law," the organisation explained in a statement.

Under IR35, self-employed workers are forced to pay more tax if the Inland Revenue decides that they are effectively employees of the company they are contracted to. The Inland Revenue has claimed that IR35 will prevent the "Friday to Monday" syndrome -- where an employee resigns only to then be employed as a contractor doing the same job.

This can be financially rewarding for the employer, who can avoid paying national insurance contributions and providing benefits such as sick pay and holidays. The contractor can also pay less national insurance on gross income by declaring some of it as a company dividend rather than as salary.

According to the PCG, under IR35 a contractor could end up paying 38 percent tax on earnings, compared to the 32 percent paid by larger rival companies.

The PCG believes that IR35 is unfair and breaks European law. In April's judicial review it argued that it constituted illegal state aid -- because large corporations won't be affected, while some small businesses would, and also restricted free movement in the EU.

According to the PCG, thousands of IT professionals have left the UK to work abroad, which the group claims will cause severe long-term damage to Britain's high-tech sector.

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