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Friday, 21 December, 2001, 13:14 GMT
Contractors' tax appeal rejected
Tax return
Independent contractors face higher tax bills
An appeal court has upheld a judgment denying consultants who provide their services via one-man contract companies the right to register as self-employed for tax purposes.

The ruling means that up to 90,000 specialist contractors will have to continue paying full tax and national insurance costs, raising concerns that some may be forced to go out of business.

The decision is the latest twist in a long-running legal dispute over legislation aimed at preventing contractors who work mainly for one client from claiming self-employed status.

The government introduced the law, known as IR35, in April 2000 in a bid to stamp out what it regarded as "hidden employment".

Contractors to fight on

The Professional Contractors' Group (PCG), an association formed especially to challenge IR35, said it will continue its campaign.

"We will drive test cases through the court which demonstrate beyond a shadow of doubt that our working practises are those of genuine businesses," said PCG head Jane Akshar.

She predicted that the government will be forced to adapt the law to accommodate genuine "knowledge-based" businesses within two years.

An initial legal challenge from the PCG failed in March this year.

Brain drain

The organisation claims that IR35 has reduced its members' net income by up to 25% a year, and is forcing thousands of highly skilled IT and engineering consultants to move abroad.

Gerald Barling QC, who represented the PCG in court, said on Friday that by penalising one-man contractors, IR35 hands an unfair competitive advantage to large consultancy groups.

"[Independent contractors] have none of the benefits but all of the risks of their large competitors, but they are now saddled with being taxed in an unfavourable way," he said.

The PCG's appeal was based on the argument that by favouring certain businesses in a supposedly free market, IR35 is in breach of European directives banning state aid.

Policy 'inconsistent?'

Critics add that IR35 is inconsistent with the government's policy of promoting small businesses.

"This is the wrong way to go about it," said a spokesman for the Association of Certified Chartered Accountants.

"It doesn't take a commercial view of the way large parts of the UK business world works."

See also:

02 Apr 01 | Business
Q&A: IR35 - a tax on enterprise?
02 Apr 01 | Business
IR35 tax challenge fails
16 Feb 01 | Business
Tories pledge to scrap IR35 tax
28 Mar 01 | Business
Call for tech training tax credits
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