IR35 fears are 'unfounded', court hears

The Inland Revenue today denied claims that IR35 will sound the death knell for tens of thousands of small businesses, claiming instead that the regulation would have the opposite effect.

The denial came from Richard Plender QC, counsel for the Inland Revenue, on day three of the challenge brought against the regulations by the Professional Contractors Group.

The Group, which has a membership of 12,000, claims that many of its members will be forced out of business if the new regime, which it brands as "misconceived", goes ahead, and that some 90,000 small companies could be affected.

The IR35 regulations are aimed at countering tax avoidance, which the government believes stems from "disguised employment". IR35's effect is to treat small companies contracted to larger ones as directly employed, and by doing so cutting them off from tax benefits they would otherwise enjoy.

However, Plender today claimed that the evidence suggested the contrary. He said that the regulations did not target small companies or those in a particular industry, and that true businesses would be unaffected by the regulations.

He told the court: "The contested legislation, which has been considered and approved by parliament, is designed to establish equality of treatment between workers whose situation is identical in all respects save that one offers his services through an intermediary.

"It is general in design and effect, draws no distinction between workers using intellect and workers using tools, does not provide for the different tax treatment of companies of different sizes or sectors, and makes no significant change in the rules governing taxation of companies.

"There is no reliable evidence that it has caused businesses to wind up or leave the country, or that it has deterred businesses from operating here, or that it is likely to do so. The evidence is to the opposite effect."

Refuting the claim that most of the 90,000 affected companies would close down, he said that evidence from independent industry commentators suggested otherwise.

"It is designed to counteract tax avoidance and to promote fairness. It infringes neither European Community law nor the European Convention on Human Rights," he said.

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