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PCG believes in the abolition of IR35. We believe that IR35 is onerous, unnecessary, and raises almost no revenue. It is complex and leads to uncertainity.
It discourages small businesses from starting up, and is anti-competitive. It should either be abolished or radically simplified.
In the medium term we support a review of the small business tax system, which will deliver a fair and workable regime to both employees and the self-employed. |
IR35 applies if you carry out work through an “intermediary” – typically a limited company of which you are a shareholder with a holding of more than 5% - to an end-user under circumstances in which, were there a contract direct between yourself and that end-user, that contract would be one of employment. IR35 was announced in 1999 as an anti-avoidance measure. It seeks to deny that freelance contractors are genuinely in business and to tax them as employees without establishing a proper employment relationship. Its extraordinary complexity makes it almost impossible for contractors to assess whether they fall within it or not - in some cases their status may rest on contracts they have never seen.
Since its inception PCG has lobbied all political parties on IR35. Finally a breakthrough has been achieved. In the Coalition’s full programme for Government, published 20 May 2010, the Government declared it will:
“Review IR35 as part of a wholesale review of all small business taxation, and seek to replace it with simpler measures that prevent tax avoidance but do not place undue administrative burdens or uncertainty on the self employed, or restrict labour market flexibility.”
PCG is delighted with the announcement that this onerous and unnecessary tax is set to be replaced. Further details have yet to emerge and PCG will be closely monitoring the whole of
the new Government’s taxation policy to ensure that it provides a fair deal to the UK’s 1.4million freelancers.
While this announcement is extremely welcome news, PCG members should be aware that until new legislation is passed, IR35 remains a potential threat.
What is IR35?
IR35 is known as the "intermediaries legislation". Essentially, it is a tax measure designed to stop "disguised employment", where an employee of a company would set themselves up as a limited company, and their original employer would re-engage them on this basis resulting in a reduced tax burden for both parties. The employee would continue on in exactly the same role, but would pay corporation tax instead of the higher income tax, and the employer would have far reduced liabiliities with regards to National Insurance contributions, sick pay and holiday pay. In other words the employee would not be genuinely self-employed.
Unfortunately in attempting to tackle such alleged "disguised self employment", the Government ignored the 1.4 million people genuinely working in a freelance way. Numerous individuals set themselves up as limited companies legitimately, and engage in business to business contracts with other companies, providing their skills on a temporary basis. They are not in fact "temps" or "employees", nor are they employers, they work flexibly and independently in a variety of fields, as consultants, contractors, interim managers, and freelancers. IR35 punished the many genuine freelance workers by creating a set of unclear "employment tests" and introducing huge uncertainty into the marketplace. (Top)
PCG and IR35
PCG was originally formed in response to IR35 by a group of contractors who realised that, if it had been in place earlier, they would not have been able to start their own businesses. Its unfairness and complexity remain the biggest single grievance and difficulty for freelance contractors.
Since IR35 came into effect, PCG has supported numerous cases in order to establish as much clarity as possible. This strategy has been successful: IR35 remains complex, but with effort and good advice it is possible to structure commercial relationships with clients that are outside IR35. Recent cases have threatened this, however, and PCG is again supporting its members in court to maintain the defence against IR35 wherever possible. (Top)
Documents and Resources
PCG members can access a variety of resources to help them with IR35 and other contractor specific issues. Policy briefing and further information about IR35 is available in the documents below.
- Introduction to IR35

PCG was formed in 1999 to protest against the Government's IR35 proposals. The organisation has come a long way since then, but IR35 remains a major issue for members. This document offers a brief overview of IR35.
- Guide to IR35
A full consideration of IR35 from the contractor's perspective: includes advice on how to decide whether or not you are caught and what action to take, plus an up-to-date assessment of the current legal position. This Guide was updated in December 2008 to include the consequences of the Dragonfly case. Available to PCG members only.
- PCG Policy Briefing: IR35

IR35 has now been in operation sufficiently long for its efficacy to be assessed. It is clear that by any sensible measure, it has been a failure.
- Dragonfly IR35 case - High Court

The High Court rejected the appeal of Dragonfly Consultancy Ltd. This case has potentially significant implications for IR35 defences, and PCG will be updating its guidance to members shortly. All material on this page should be read with this in mind. See also PCG's initial press release. (Top)
Dragonfly IR35 case - Special Commissioners 
A summary of the key facts in the Dragonfly case prior to the High Court hearing in June 2008.
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