Controversial IR35 legislation looks set to remain in place, according to a
recent High Court decision.
Dismissing an application for the judicial review of the legislation by the Professional
Contractors Group, formed to fight IR35, Mr Justice Burton said IR35 – which is
intended to close a legal loophole regarding the payment of National Insurance
Contributions by professional consultants – does not infringe either the Human
Rights Act or EC law.
The IR35 tax law, contained in the Finance Act 2000 is, according to Malcolm
Pik, of Addleshaw Booth & Co, "Crippling many independent
contractors". It has hit the IT industry, which relies on contractors,
particularly hard.
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Before IR35 was introduced, professional consultants could provide their
services to clients through the intermediary of a personal service company. The
client then paid fees to the service company without deducting tax or NICs,
while the consultant could then draw the money from the company as an annual
dividend.
IR35 means that the service company must now account to the Inland Revenue
for NICs and income tax for the fees it gets from the client for the
consultant’s services.
