The Inland Revenue is to compel recruitment agencies in the IT sector to disclose details of payments made to contractors in an effort to clamp down further on 'tax evasion'.
In April 2001, at the end of the current tax year, some 3,000 employment agencies will be required to list all payments made to limited companies for work carried out on their clients' behalf.
These payments will then be matched against the tax returns of contractors operating via personal service companies, to determine if any are claiming tax advantages now prohibited under IR35.
According to an Inland Revenue spokeswoman, the initiative will supplement the department's IR35 tax rules, "closing a loophole" and "levelling the playing fields" among taxpayers who are considered to be 'employed' under the new regulations, regardless of their mode of operation.
However, organisations such as the Professional Contractors Group (PCG) have argued that IR35 penalises independent entrepreneurs by raising their tax and National Insurance contributions above those of a PAYE employee. The legislation is currently before Parliament in the Finance Bill.