Taxation

Tax avoidance anti-avoidance provisions deeming remuneration paid to one-man companies to be salary not unlawful or breach of convention rightsR (Professional Contractors Group Ltd and others) v Inland Revenue Commissioners: QBD (Mr Justice Burton): 2 April 2001The applicants represented individuals working through one-man companies in the knowledge-based contract industry and who charged out services to clients in return for remuneration paid by the client to the company.

Composite legislation was introduced by section 60 of the Finance Act 2000 which became known as IR35 to eliminate the tax-avoidance practice by treating such remuneration as salary of the worker and chargeable to tax under schedule E.

The applicants sought judicial review, claiming that the legislation was unlawful by virtue of either the Human Rights Act 1998 or European Community law.Gerald Barling QC and Kelyn Bacon (instructed by Bond Pearce, Southampton) for the applicants.

Richard Plender QC and Rabinder Singh (instructed by Solicitor of Inland Revenue) for the revenue.Held, refusing the application, that the legislation did not constitute an interference with an individuals rights to enjoy property (namely the benefit of a shareholding in a service company) under article 1 of the first protocol to the European Convention for Human Rights as scheduled to the Human Rights Act 1998, and thus did not infringe the 1998 Act; that, moreover, the legislation was not incompatible with the provisions of European Community law applying to unnotified state aid, the hindrance to free movement of workers, to freedom of establishment and to freedom to provide services; and that, accordingly, the IR35 provisions to combat tax avoidance were not unlawful.