Government rethinks on 'Consultancy Tax'

The government is believed to be having second thoughts about legislation aimed at cracking down on people who hire themselves out through their own companies.

Claims that the measures could hit 60,000 UK businesses have caused the rethink. Current proposals were set to crack down on people who operate as 'personal service companies' by offering their services through one-man companies of their own.

In his March budget, Chancellor Gordon Brown announced that he would be clamping down on people who abused the system by quitting as an employee on Friday, then returning to the same job on Monday as a one-man company.

The government's plans would make anyone working in this way subject to income tax and National Insurance contributions as if they were still a regular employee of the client organisation.

Employers and employees were not happy, saying the proposals are badly thought-out and would have a detrimental effect on business. Particularly serious consequences were predicted for many companies in the IT and construction sectors, which rely heavily on consultants for specialised skills.

The Chancellor has claimed that workers are being forced out of employment, losing their employment rights and pensions benefits. Tax experts say this could have a beneficial effect on the lifestyles of some of them, but most employees could pay dearly for the privilege.

Gary Cutlack