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High Court rejects Government's IR35 criteria

CONTRACTORS CLAIMED victory over the Government this week after a High Court ruling criticised the controversial IR35 tax regulations and enforced new guidelines.

But the ruling rejected contractors' claims that the system breached European law and the Human Rights Act.

The decision means the IR35 regulations will remain. However, the Inland Revenue will now be expected to take a more flexible approach when assessing whether engineers working through single employee firms are truly operating as subcontractors rather than 'disguised employees' avoiding tax and National Insurance payments.

In his ruling, Mr Justice Burton offered hope to independent contractors by issuing binding guidance that will force the Revenue to place a higher emphasis on three new key factors when assessing whether a person is operating as a contractor or as an employee. He identified these factors as mutuality of obligation, control and substitution.

Until now the IR's basic tests in assessments have ranged from how often the contractor is paid to whether or not he supplies his own tools. These methods have been long criticised by Professional Contractors Group (PCG), which brought the legal action arguing the tests are inappropriate to the sector's modern operating practices. 'The most unfair aspect of IR35 was that we had to pass a set of tests which had no relevance to our working practices, ' said PCG chairman Gareth Williams.

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