Tax rules which exempt the self-employed from paying national insurance are to be scrapped by The Treasury.
The targets are a growing number of people who operate as private companies when accepting work.
So-called ‘off payroll’ contractors now comprise a third of those claiming to be self-employed, the Treasury estimates.
If it continues, the practice of operating as a personal service company will be costing HM Revenue & Customs around £1.2 billion a year by 2023.
Changes could be announced in this month’s Budget, with the Treasury insisting that reform is essential, as these contractors should be paying tax as full employees.
They would then be liable to pay higher levels of national insurance compared to the self-employed under tax rules known as ‘IR35.’.
A clampdown in the public sector has brought in more than £400m in extra taxes, say the HMRC.
The plans were dropped after an outcry last year, but Treasury officials are determined to push them through this time.
Their boss, Chancellor Philip Hammond, faces a tough task at this year Budget, after promises of £20 billion more for the NHS within five years.
Prime Minister Theresa May added to that pressure when she told the Conservative Party conference that austerity was over.
The burgeoning contracting industry strongly opposes the changes and says the Treasury’s estimates of lost revenue are “ideologically flawed.”
Their leaders say freelances charge more than if they were employed as staff and that any tax gains would be lost by a reduction on tax paid on income.
Andy Chamberlain deputy director of policy for The Association of Independent Professionals and the Self Employed (IPSE), said business groups were “almost unanimous” in their opposition.
He added: “If the chancellor does push ahead with this, he will be flying in the face of the very businesses he pledged to support less than two weeks ago at the Conservative conference.”
Other Budget measures under consideration are even more controversial, including a freeze on personal tax allowances.
This would break a Conservative pledge from the 2017 election that they would go up to £12,500 for lower rate taxpayers and £50,000 for higher rate taxpayers by 2020.
The move would raise an estimated £2billion a year, but run the risk of being voted down in Parliament.
