Contractors appeal on tax ruling

THE Professional Contractors Group goes to the Court of Appeal on Tuesday, its 14,000 members confident they can show that the way they are taxed is illegal under European law.

The contractors, many of them engineers or IT consultants working on short-term contracts in the City, object to being treated as 'disguised employees' for tax and National Insurance purposes.

It is claimed that the tax, IR35, prevents small contractors in knowledge-based industries operating on similar terms to their larger competitors, many of them US-owned companies.

The appeal argues that IR35 contravenes European legislation on two counts - by giving 'illegal State aid' to the small contractors' big competitors and by acting as a barrier to the free movement of those contractors in the European Union.

A judicial review found for the Inland Revenue and against the PCG in March on points of law, but the judge, Mr Justice Burton, found in the contractors' favour on factual matters, and was highly critical of the way Chancellor Gordon Brown brought in IR35 and how the Inland Revenue operates it.

'The High Court backed PCG on so many factual issues that we feel it's only a small step to prove that IR35 is not just unfair and uncompetitive but illegal as well,' said PCG chairman Jane Akshar.

As might be expected from IT-savvy 'knowledge workers', the contractors are backing their case in court by running a website, www.ir35update.co.uk