The Professional Contractors Group (PCG) took the government to the Court of Appeal last week seeking to prove that IR35 is illegal under European law. The original judicial review in March found in favour of the government, but the PCG has expressed confidence in the appeal hearing.

The PCG’s counsel Gerald Barling QC addressed the court on day one, presided over by Judge Auld. Discussion included the question of whether IR35 breached the EU law on freedom of movement and the issue of expenses. ‘Why should [contractors] have to fund their ordinary business expenses out of taxed incomes,’ asked Barling. Richard Plender pleaded the case for the Inland Revenue.

Contractors still hope that IR35 may be overturned. PCG chairman Jane Akshar said: ‘The High Court found in PCG’s favour on so many factual issues that we felt it was only a small step to prove that not only is this law unfair and uncompetitive, it is also illegal.’

This is the latest round in a battle between contractors and the government which has now being going on for more than two years. Many business leaders have argued that the tax will damage the economy by penalising knowledge-based workers.

The Court’s judgment is expected before Christmas or early in the new year.