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Clampdown could mean bigger tax bills for IT contractors

IT contractors could pay more tax after the chancellor Gordon Brown announced a review of managed service companies to clamp down on tax avoidance in last month's Budget report.

The Treasury claims to have found evidence of employers and recruitment agencies forcing people to set themselves up as companies to avoid paying employers' national insurance contributions or to deny staff their employment rights.

The review reflects fears by the Treasury that people are paying tax as managed service companies when they are de facto employees. People who set up managed service companies pay corporation tax on their profits rather than income tax, which is paid at a higher rate.

The Association of Technology Staffing Companies fears that the Treasury will use the review to compel companies that supply a service to pay income tax rather than corporation tax.

"The Treasury seems to feel there is a lot of disguised employment, but in the IT sector I do not believe that is right. It is different and there are no victims here," said Atsco chief executive Ann Swain. "There is no need to protect people who are billing £67,000 a year."

The Treasury could change the law to make all IT contractors pay income tax said Naomi Branston associate solicitor in the employment and pensions department of Taylor Wessing, a corporate, finance and real estate law firm.

"The extreme option would be to say they would not have the status of contractors any more," she said.

The Treasury review follows a Court of Appeal ruling last month that a former contractor for Cable & Wireless could claim unfair dismissal because the company had treated him as an employee rather than an independent provider of services.

 


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