FREEL100

Better than the test match

- a 'Freelance Informer' legal article from Roger Sinclair

The question most regularly dropping into my inbox at present is 'what do you think of the PCG Judicial review'?

Blow by blow accounts of the proceedings can be found on http://www.ir35update.co.uk . I have to admit that I've been regularly checking this site with the enthusiasm others give to following test match scores!

The hearing of this case began last Tuesday 13^th; as I write this article on the evening of Monday 19^th (thanks, Ed., for dispensation to file my story even later than usual!) the case is estimated to have one day to go - although it will be some time before the Judge makes his decision and gives judgment.

Particular points which have emerged - and which may or may not end up being reflected in the final judgment - include the following:

Whatever the end result, win or lose, the Judge has indicated that he may well give guidance in relation to the interpretation of IR35; regular readers of this column will know that one of my pet bugbears is that whilst we may all disagree with IR35 itself, I find particularly offensive what I can only describe as the blatantly biased and one-sided way in which the Revenue seek to apply it; such guidance may (it is to be hoped) at the least direct the Revenue to apply the law as it actually is, rather than as they might wish it were!
In particular, the Judge has expressed a view that holding themselves out as willing to work for multiple clients, either at the same time, or sequentially should be a very significant factor to be considered in relation to the 'employment or self-employment' question
The Revenue's barrister has claimed that the Revenue now offer pre-signing advice in relation to whether a contract will or will not be caught - although so far as I can see the only information on the Revenue's website http://www.inlandrevenue.gov.uk/ir35 on this subject clearly states that such advice is not available until after a contract has been signed…
At present there is apparently legal authority for saying that (1) when assessing employment or self-employment status, the correct approach is to paint the picture of all the various characteristics of the engagement, and then stand back and consider whether the painted picture is one of someone in business on his/her own account (Hall v Lorrimer 1994) - and also for saying that (2) the fact that one may be in business on one's own account does not necessarily mean that each and every engagement, even in the course of that business, is a self- employed engagement; the Judge has indicated a view that that the simple fact that a Contractor is in business on his/her own account may of itself be a major determining factor in relation to the IR35 status of an individual contract. A bit chicken-and-egg, maybe, but nevertheless potentially helpful.
The Judge has expressed 'substantial criticism' in relation to the Revenue's practice of citing non-existent contract terms in support of negative opinions on IR35 status issued by the Revenue - another one of my own pet bugbears!
The Judge has suggested that Where a Contractor is caught by IR35, there may be a good basis for claiming employment rights against Clients - not that Contractors want such rights, but this may be a powerful incentive on those Clients who at present seem to want the dual pleasure of savouring and eating their cake to be a little more motivated to cooperate with IR35-friendly arrangements.

I know that many Contractors are pinning their hopes on this case, expecting that (1) PCG will win, and (2) IR35 will thenceforth disappear into oblivion, and that they will no longer have to worry about it. I have to say that I do not think this will happen. Now, don't think I mean that PCG will lose - I'm not saying that. The technicalities of the issues involved (whether these UK tax laws infringe EC legislation etc - and what the consequences are if they do) are, I confess, outside the scope of what this lawyer regards as his field of expertise, and I would not presume myself qualified to pre-judge those issues.

I do think however that, whichever way the Judge decides the case, it is almost unthinkable that his decision will be the end of the story. If PCG wins, I will expect the Revenue to appeal; if the Revenue win, then I will expect the PCG (subject to funding) to appeal; or, even more complicated, each of PCG and the Revenue may appeal in relation to certain aspects of the Judge's decision, and oppose the other's appeal. I do not expect us to have a final end result for some considerable time yet.

If the 'final final' end result is that IR35 disappears, that will be a bonus. But my own prediction, for what it is worth, is that whilst the ultimate decision may well result in some minor tinkering with the rules implementing IR35, it is considerably less likely to result in their disappearance.

And meanwhile, IR35 remains in existence. So what I am saying is that until not only this Judicial review hearing but also any resulting appeals process is concluded, Contractors should continue to plan and manage their affairs as though IR35 will remain in force. Any other course is certainly taking unnecessary risks, and may well be both foolish and costly.

I must say though that, win or lose, those who have conceived and driven this novel challenge to the law have earned the respect of us all for their vision and determination.

Finally: the decision in another case last week (Montgomery v Underwood 9^th March 2001) has reinforced existing legal authority to the effect that there cannot be an employment type relationship in the absence of (1) basic minima of mutual obligation and (2) a sufficient degree of control; this case supports earlier authority, which suggests that unless these points are first established, it is unnecessary to consider the broader picture. In that case it was also suggested by the Court of Appeal that the lack of review and grievance procedures could be a significant non-employment pointer.

23^rd March 2001

I'd really appreciate your feedback on this FAQ - so mail me and tell me what you think of it, if it's been useful to you, or let me know of any specific problem you have where I may be able to help.

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