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Overturn, refer or confirm: The IR35 Appeal according to Redston
by Richard Powell at 18:29 03/12/01 (News on IR35)
Anne Redston, tax guru and author of the book 'IR35: Personal Service Companies,' believes the imminent legal appeal over IR35 could go one of the following three ways...

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    She said: "The court could:

    • Overturn Mr Justice Burton's decision that IR35 was acceptable under EU law- i.e. an outright win for the PCG;
    • Refer the case to the European Court of Justice; or
    • Confirm Mr Justice Burton's decision and also not allow an appeal to the EU- i.e. an outright win for the Revenue.

    "The middle option, a referral to Europe, was not really explored in the High Court, and in this context there are at least two interesting points:

    "The first will be to review Judge Burton's decision in the judicial review that European law had been breached, but that this was justified because the purpose of IR35 was to combat tax avoidance. In previous cases however, the European Court of Justice has held that tax avoidance is not a justification for a breach of EU law. Mr Justice Burton said that he could distinguish the PCG case from these earlier cases and thus he would allow the Revenue's defence.

    "The Court of Appeal may consider that as this decision breaks new ground, it ought to be taken to the European Court of Justice (ECJ) to see if they agree that tax avoidance is a justification.

    "Secondly, there is the point of proportionality. If IR35 is found to be disproportionate, then it will be unacceptable under European Law. Personally, I do not believe that IR35 is proportional because the rules are far too difficult for one person companies. I am not talking about the status tests here, but the complexity of the measures themselves. If IR35 was being imposed on a big corporate company with a large tax department, then that could be proportionate- but this is not the case here.

    "If the case does go to Europe, we could have to wait eighteen months or two years for a decision. In the meantime we can expect to see a number of test cases on IR35 come to court. These will look at where the line is between employment and self-employment, and hopefully make things much clearer for contractors. This is likely to be the case whoever wins.

    "The Appeal is going to be very different from the judicial review of March/ April this year. This time there will be a distinct narrowing of focus on the legal points of the legislation. Arguments will be based purely on points of law; we will not see a repetition of the judicial review, where there was for example an exploration in the court of areas like the history of the legislation and the Revenue's guidance."

    The Professional Contractors Group is pursuing its case against IR35 because the judge, Mr Justice Burton ruled in the Group's favour on many of the findings of fact in April this year, but ruled against them on the point of law. The Group felt it was only a small step, having won on the factual issues, for a court to find on the legal point of whether IR35 is illegal state aid or a barrier to freedom of movement under European law. If the courts decide it is, then IR35 is illegal in UK law.

    Richard Powell, Shout99

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