IR35 Timeline - A history of the legislation

On 9th March 1999, the Inland Revenue issued a Press Release detailing how "changes are to be introduced to counter avoidance in the area of personal service provision".



Essentially, the government identified contractors as 'tax avoiders', due to the tax saving benefits they enjoy from working through a limited company, while performing roles similar in nature to those of permanent employees. Although the Revenue claimed that the initial targets were 'Friday to Monday' workers (permanent employees who return the next week as contractors), it has since become clear that IR35 was created to apply to all freelance contractors - particularly those in the IT sector.



The Inland Revenue subsequently issued a new press release on 23rd September 1999, which diluted the impact of the original release and included various 'concessions' to contractors (such as the 5% general allowance and the withdrawal of the proposed certification scheme).



Even in its revised form, IR35 still has a major impact on the contracting community since contractors may be classed as 'employees', while still paying employers' taxes and receiving none of the benefits normally associated with permanent employment.



After initial protests from the House of Lords, the Welfare Reform and Pensions Bill (which includes the enabling clauses for IR35) was eventually passed in November 1999, after the government made veiled threats to the Lords should they decide to rebel again.



The Paymaster General issued a statement on how training expenses should be treatedunder the IR35 rules. As expected, no further concessions were granted - all such expenses should be claimed as part of the '5% allowance'.



The final guidelines on determining 'employment status' were published on the Inland Revenue site on 1st February 2000. This publication added substance to the original IR56 test and confirmed that the Revenue would assume all contractors with standard agency contracts will be subject to IR35, unless they can prove otherwise.



In February 2000, the Revenue also announced an 'email service'

whereby contractors can gain an opinion as to whether their contract will be subject to IR35 or not.



The Finance Bill, first published on 7th April 2000, contained the necessary clauses to ensure that IR35 becomes law under the Finance Act. IR35 came into effect on 6th April 2000 with taxes applied retrospectively.



The Finance Bill completed its parliamentary passage and received Royal Assent on the 28th July 2000 as the Finance Act.



Since April 2000, IR35 has gained more press recognition, and the legislation has been widely condemned by a number of influential bodies, including the CBI and ICAEW Tax Faculty. The ICAEW released a damning report which gave 'IR35' just 30/100 for 'good law' - including zero points for 'fairness'.



The Professional Contractors Group, which was originally founded to counter IR35, then won its battle to have IR35 made subject to judicial review. Mr Justice Gibbs granted the request on all fronts, dismissing the Inland Revenue claims that IR35 was a general measure not aimed specifically at small businesses such as contractors. Both sides agreed to submit evidence to the review by 12 January 2001.



Following the Judicial Review hearing in March 2001, Judgement in the PCG vs Inland Revenue Judicial Review case was handed down in the High Court on Monday 2nd April. The application by the PCG was dismissed and IR35 remains in place.



Undeterred by the outcome of the Judicial Review Hearing, in August 2001 the PCG announced its intention to continue the fight against IR35. The PCG's members decided to fund an appeal after the High Court ruling, which although highly critical of the Revenue's action, found that IR35 was not contrary to European law.



The Judicial Review Appeal took place in December 2001, with the Court of Appeal finding against the PCG.



In January 2002, following an appeal for funds, the PCG annouced that it will no longer to persue the Judicial Review approach, and will focus its efforts on case law.



Further Reading



Contractor UK's brief outline of IR35






































May 11, 2004