UK: IR35 - A Soap Opera?

WJB Chiltern consultants have been kept busy advising clients who perform consulting services, using personal service companies. For such clients whose engagements fall within the scope of IR35 increased tax and NIC burdens by as much as 30% have been experienced, following the introduction of these new rules from 6 April 2000. A high profile challenge was made by the Professional Contractors Group against the Government on the basis that the legislation breached both human rights and European law. The case took the form of a judicial review before the High Court and at the end of March, judgement was delivered in favour of the Inland Revenue. This meant that liabilities had to be calculated and paid on or before 19 April 2001 if interest on late payments was to be avoided.

However, like all soap operas, there are peripheral themes and a few days before the main judicial review reached its conclusion, an employment tribunal in Bristol held that a consultant who worked via his own personal services company for Hewlett Packard was an employee and thus able to claim unfair dismissal when the contract with the personal service company was terminated. It is assumed that the tribunal decision will be subject to appeal, but if it is upheld in the higher courts, this means that falling within IR35 is effectively proof of an employment relationship between the individual and the client, notwithstanding the existence of an intermediate entity in the form of a personal service company.

The implications are clearly far reaching. The Professional Contractors Group have appealed against the findings of the High Court so the judicial review could still be reversed by a higher judicial body.

Visit our web-site www.wjbchiltern.com for future developments but the saga competes with anything that "Neighbours" or "EastEnders" can offer!