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IR35 Decision - Court of Appeal

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The Court of Appeal has handed down its decision in the IR35 case, Professional Contractors' Group v Inland Revenue.

In 1999, the government decided to prevent individuals, who would otherwise be classified as employees, from obtaining the financial advantages of self-employment by setting up one-man service companies and hiring out their services. This decision became known as 'IR35', the number of the Inland Revenue circular setting out the changes (which were enacted in three tranches, coming into effect on 6th April 2000).

The Professional Contractors' Group brought an application for judicial review, challenging the legislation as being contrary to European Law. On 2nd April 2001, Burton J. dismissed the application, holding the IR35 legislation to be lawful (see bulletin of that date).

The Professional Contractors' Group appealed.


The Court of Appeal upheld Burton J.'s decision, holding the IR35 legislation to be lawful. It rejected arguments that the legislation was anti-competitive or inhibited freedom of movement, and refused to refer the matter to the ECJ.

Of interest is Robert Walker LJ's comments about the confusing distinction between employment and self-employment, and his floating the possibility of recognising a middle status reflecting the "no-man's land between Schedule D and Schedule E, rather than insisting on the gulf which exists in theory (but, not always, in practice)..." (decision, para 54).

The full decision can be seen here.