Chancellor George Osborne’s controversial contractor clampdown, which could force 90% of ‘off the books’ workers onto the payroll, is part of a plan to reduce the number of professionals using personal service companies.
The law changes could be announced in the 2015 autumn budget later this week and are expected to raise an estimated £400m every year. The move will also lead to a major tax hike for thousands of flexible workers across the country.
Personal service companies were once a niche device used by contractors engaged in short-term roles with several companies; however, their use has become more widespread in recent years, with some workers now saving huge amounts of money every year through lower national insurance and tax payments.
The BBC admitted that almost one-third of its presenters were paid in this way back in 2012; however, the corporation has since revised its rules to the limit this practice. A government source has also revealed that the use of personal service companies is widespread in sectors such as nursing and information technology.
The new legislation, which will apply to the public sector and to private firms, will clamp down on these workers and force them onto an organisation’s payroll if they have been working for the same company for more than a month.
A government source said: “There is a legitimate use for personal service companies, but we estimate that 90% of people using them should be on the books of the organisations they work for.”
The source continued: “Some people are confused about the rules, others are deliberately not complying with them to reduce their tax liability. It’s not fair on the taxpayer and it’s not fair on people’s fellow workers.”