IR35 slammed by Treasury watchdog

A recent House of Commons Treasury Select Committee report criticises the Treasury on various aspects of policy, but singles out IR35 in paragraph 46.

The news is a big boost to the Professional Contractors Group (PCG), which is in the midst of a legal challenge to the proposed changes to the way contractors and some other categories of workers are taxed.

The PCG has written to Prime Minister Tony Blair calling for his personal intervention to stop the controversial changes. The letter points out that "150,000 small knowledge-based companies will have to pay their training budgets out of taxed income".

Gareth Williams, chairman of the PCG, said in a statement: "The Treasury Select Committee has now added its voice to many influential bodies who can see that IR35 is neither fair or efficient. The report specifically mentions IR35 in the context of 'failing to achieve' a 'fair and efficient' tax system."

But Kevin Barrow, head of the IT personnel group at lawyers Tarlo Lyons, was not hopeful that the Select Committee's comments would carry any weight at the judicial review, slated for 15 March.

He said: "I think this will be gaily ignored by the court."

He added that the PCG has outlined different grounds for its upcoming challenge to the law in that it restricts competition and infringes existing regulations on human rights.

Barrow also said: "This country needs to invest in its brainpower. Knowledge workers need incentives for training and re-training. They should be allowed to put these costs against tax."