The Royal Courts
of Justice |
The Inland Revenue’s defence of its legislation got off to a bad start when the Judge pointed out a number of embarrassing typographic errors in papers submitted to the court which subsequently had to be clarified as to their intended meaning before the court could continue.
The judge admitted he had not done ‘all of his homework’ regarding the studying of the evidence presented to him by the PCG promising to ‘catch-up’ and the proceedings seemed to begin as Mr Barling QC swam against the tide of misundestanding.
On a number of occasions the penny audibly dropped as Mr Barling QC led the judge through the finer points of how damaging IR35 would be if it were allowed to be unleashed upon the knowledge-sector in its entirety.
One argument that the Judge quickly picked up on was the ‘5% rule’ which puts a limit of allowable business expenses, saying ‘Why isn’t 5% enough, if that is the problem why not go to the Inland Revenue and simply tell them you need 10%’. Mr Barling QC replied by saying ‘16.6% is the average amount needed by a contractor operating under a limited company to remain competitive against the bigger companies.’
The competitive unfairness that IR35 causes to contractors against their larger competitors was another consistent argument presented by the PCG’s legal team from this point onwards.
Gareth Williams, PCG Chairmam
outside Court this morning |
Replying to the judge’s arguments that ‘smaller contracting businesses supplying themselves and their skills were different from a company that supplied 50 workers to a firm’, Mr Barling QC said, ‘They provide exactly the same services that the bigger companies do, although if IR35 is implemented, they will have to do it with one hand tied behind their backs’.
Tying this in with the 5% rule, he continued, ‘Entrepreneurs must have a big company-style ‘corporate framework structure,’ adding that the legislation ‘eliminated them from being able to utilise such a system and so destroyed the possibility of the big companies of the future which often started out as the one-man-bands. Now they will be clobbered’, he said.
Mr Barling QC stated that IR35 was a ‘clear distortion of competition’ and dismissed the Judge’s suggestion of the possibility that such small companies would be better off either disbanding and becoming permanent employees or by working under an agency. ‘Sole traders are not attractive to agencies’, Mr Barling said, 38% of these small companies’ work does not come from agencies compared to the 29% that does. It would only create a greater worry for the employer to take the contractor on if he was affected by IR35.’
“I see this as the Exchequer’s point as being ‘We’re losing money because these people are not paying the taxes they are due to’- so they are saying that they should jolly well pay’ Justice Burton said. ‘Yes’, Mr Barling replied, ‘but it throws the net far too wide.’
Is it wider than the issue of providing the same service as an employee? The Judge asked.
‘Yes’, Mr Barling said, ‘because if the contract is a long one, then according to the IR35 ‘test’ they will fall under the legislation and the net is cast wide’. I don’t know why it is limited to this sector. It won’t affect other businesses that can use a corporate structure to grow their business.’
‘Maybe I will be persuaded’ the Judge said.
A report of the afternoon session will be posted on Shout99 shortly after it concludes.
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Richard Powell, Shout99
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