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| CURRENT SECTION :: IR35 / IR591 | UK's most visited IT Contractor Site - 250k unique visitors March 2008 |
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In the Court of Appeal today, the 21 December 2001, IR35 has undoubtedly become entrenched in the statute books. It seems unlikely that the PCG will appeal to the House of Lords, this supposition is based on the scale of costs so far and the resolute opinion of both Mr Justice Burton in the High Court and Lord Justices Auld, Dyson and Robert Walker in the Court of Appeal. In the judgement, which was handed down in court, Lord Justice Robert Walker, with whom Lord Justices Auld and Dyson concurred, firmly backed the decision of Mr Justice Burton in the High Court. In paragraph 50 of the judgment his Lordship stated "...I am not persuaded that the judge [Burton J] was wrong in his conclusions or that there was any significant fault in his reasoning." Before looking at the reasoning of Burton J and the grounds of appeal, Robert Walker LJ spoke more about the genesis, purpose and legal and economic effects of the IR35 legislation. Mr Justice Burton made eight findings of fact, which, according to Robert Walker LJ, neither side had squarely challenged. His Lordship stated that sub-paragraph (c) of Schedule 12 was of great importance and that it needed to be stressed because "...Gareth Williams, the Chairman of the PCG, tends to overlook its importance. The legislation does not strike at every self-employed individual who chooses to offer his services through a corporate vehicle." It only applies to those individuals whose status is near borderline and so open to question or debate. His Lordship mentions two cases which determine the ordinary principles established by case law, those of Market Investigations and Hall v. Lorimer. With the greatest of respect to his Lordship, the issue identified above is at the heart of the problem. So, whereas his Lordship appears to present the borderline case as not much of a problem, these are the causes of major uncertainty. Indeed it is not until you go through the Revenue wringer that an individual would know whether they are borderline or not. Robert Walker LJ also points out that it is important to note that the intermediary need not be a company and that the IR35 regime is concerned primarily with the taxation of the worker, not the intermediary. The tax avoidance is aimed at the individual worker not the intermediary. In addition, his Lordship pointed out that only workers who have a material interest in the company or received what Burton J called a 'traceable dividend' are affected by the IR35 regime. Moving on to the issues of European Community law, his Lordship made particular comment on the phrase coined by Burton J of 'negative state aid' he continued: "Although it is a vivid expression I respectfully doubt whether it is useful...[it] may be unhelpful by appearing to assume what has to be proven." This was a phrase upon which counsel for the PCG had, in part, sought to rely. The submission of Mr Barling that IR35 is on its face selective because para 1 of Sch 12 relates to an unidentifiable sector of the economy, as in small worker-owned businesses, warranted serious consideration. His Lordship, however, did not accept Barling's contention and preferred instead the submission of Dr Plender citing the decision of the Commission on Danish tax relief on highly qualified experts. That decision was cited as showing that a mere propensity for a measure to favour one sector rather than another cannot amount to selectivity. His Lordship's conclusion on the issue of State Aid concerned the "...heart of the matter..." of what sort of 'system' IR35 was concerned with, and what was the relevant comparison for the purposes of "an equal competitive footing". Mr Barling's argument that the relevant system was that of corporate taxation and the relevant comparison was as between a service company and a larger trading company was rejected outright. Addressing the issue of Freedom of Movement, it was stated that the three articles 39 (workers), 43 (establishment) and 49 (services), were mutually exclusive. This was in the sense that a particular factual situation cannot fall to be considered under more than one article. Robert Walker LJ considered the cases cited in depth but came to the conclusion that IR35 does not offend against the principles of freedom of movement and that the legislation is proportional to its stated objective. In paragraph 89 of the judgement, Robert Walker LJ again raises the issue of "...whether it might not have been possible to bring forward measures which accorded some recognition to the existence of a sort of no-man's land between Schedule D and E, rather than insisting on the gulf which exists in theory (but not always in practice) between them." This concludes the hearings on the legality of the measures now notoriously known as IR35. It is now for the Courts, the PCG, the Revenue and other commentators, myself included, to find a more certain way through the maze that is the Employment Status Test. Dec 21, 2001 Email this article Printer friendly page Previous Page
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