IR35: Contractors take the tax man to court

But the PCG has been told it is "destined to fail" in its attempt to block IR35 legislation through a judicial review.

Leading City law firm Tarlo Lyons believes the PCG, which has labelled IR35 unfair, will be unsuccessful in court because challenging an Act of Parliament is "very difficult and very likely to fail".

IR35, introduced on 6 April 2000, is supposed to close a loop hole used by IT contractors setting up limited companies to avoid paying full levels of tax and National Insurance contributions.

Kevin Barrow, head of the IT Personnel Group at Tarlo Lyons, acknowledges that certain aspects of IR35 could damage to the UK economy. He said: "The big problem about IR35 is that it fails to provide tax breaks for contractors for training and retraining."

However, he said: "I generally welcome the regulations as they seek to address unfair tax avoidance in the IT and other sectors."

The PCG alleges that IR35 restricts free movement in line with human rights under European law. It is also challenging what it sees as unfair government help for larger consultancies.

The case is likely to last for three days.