Freelance tax switch speeds up

The government has been accused of railroading through key rules for its crackdown on personal service companies by the back door.

The new rules were added last week to amendments to the Welfare and Pensions Bill detailing new tests for National Insurance purposes – almost certain to be adopted for PAYE from next April.

Social security minister Stephen Timms made clear to MPs during debates on the Bill that those who set themselves up as personal service companies will have to pay the same NI and tax as employees. ‘We need to ensure that tax and NI rules are in line,’ he said.

The Bill sets out a test: ‘Has the employer ongoing control over what tasks the worker does or how they are carried out?’ An individual will only escape if they are engaged to do a job ‘and have total control over the manner in which the task is undertaken and the way it is achieved’. If they fail this test, then tax and NI will be their employer’s responsibility.

The move will prompt further concerns from the IT industry over the crackdown on personal service companies announced in the Budget.

The Professional Contractors’ Group this week warned that the measures, intended to reduce tax avoidance, could lead to a ‘brain drain’ of more than 30,000 computer and engineering specialists from the UK. Tax experts have warned that the Inland Revenue’s eagerness to catch tax avoiders could lead to ‘collateral damage’ as those involved in non-contentious business arrangements are hit.

Angry protests by Tories and Liberal Democrats failed to halt the move. Shadow finance minister John Whittingdale complained the crackdown on personal service companies would be brought in next April but not legislated for until next year’s Finance Bill. He said: ‘It seems the government intends to bulldoze the matter through with no attempt to listen to concerns among those affected.’

Paymaster General Dawn Primarolo retorted that the Revenue was consulting representative bodies. Liberal Democrat spokesman Dr Vincent Cable accused ministers of failing to understand the business logic of outsourcing.

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