Officials reviewing the IR35 tax clause, which particularly affects IT contractors, said lobbyists had taken too narrow an approach in arguing against the legislation.
A judicial review into the IR35 tax clause which demands small companies treat all turnover as salary, came to a close on Tuesday evening.
The case was brought by the Professional Contractors Group. The PCG was founded specifically to fight the tax which came into force last April. It had hoped Chancellor Gordon Brown would mention the clause in this year's budget, but he did not refer to it in his statement.
Although the court recognised the IR35 tax clause was illogical, it said the PCG argued its case too narrowly in favour of IT contractors only.
The group claimed the legislation unfairly clamped down on contractors across all areas of employment.
Employee benefits experts said last week that any changes to the legislation could cost employers billions of pounds to implement. An estimated 90,000 consultants would be entitled to benefits.
"We are pleased that the judge has recognised our concerns and made several findings of fact in our favour," said PCG spokeswoman Susie Hughes. "Now it is a question of law."
A decision over whether the clause will be repealed is expected next week.