AROUND 170,0000 self-employed workers face paying thousands of pounds extra a year in tax as the government presses ahead with new employment laws.
The changes will hit those working in the private sector, such as IT workers and management consultants, who pay less tax by setting themselves up as private companies.
The rules mean the business you work for rather than yourself will be responsible for deciding your tax status.
Those deemed to be inside the rules are taxed as an employee, usually at a higher rate, but don’t receive employment rights like holiday or sick pay.
The laws, known as IR35, were first announced by Chancellor Philip Hammond in last year’s Budget.
Mr Hammond has already targeted the public sector including the NHS under what he sees as a loophole when they pay freelancers via companies, but from April next year the rules will also include those working in the public sector.
The government estimates the changes, unveiled in the draft Finance Bill published yesterday, will affect 170,000 contractors.
They’ll apply to medium and large-sized businesses.
Calculations by Contractor Calculator, an advice website, show a contractor earning £55,000 and racking up expenses of £3,000 a year would be £7,489 worse off.
This is if the company passes on the entire tax burden onto a contractor, as businesses will be hit with extra taxes by treating freelancers as employees.
If the business instead decides to foot the bill, you’d still be £3,119 worse off unless you raised your rates.
Of course, the exact amount you’ll lose each month depends on how much you earn but some can expect a yearly pay cut of roughly 20 per cent.
The average annual salary for freelancers is just above £58,000, according to CW Jobs.
Dave Chaplin, chief executive of Contractor Calculator, told The Sun: “HMRC have estimated that 170,000 contractors will be affected, and claims that 90 per cent of them will have their income dropped.
“That’s over 150,000 individuals who are about to face up to a 20 per cent pay cut overnight in the next nine months.
“For many, that’s the cost of their current mortgage.”
The Sun has contacted the Treasury for a comment.
Self-employed workers are taking pay cuts, working in jobs they don’t want and delaying having kids in order to get on the housing ladder, a report revealed in May.
Self-employed mums could claim up to £145 a week on maternity leave.
Freelancers could also slash tax bills by £355 each by claiming for expenses.
We pay for your stories! Do you have a story for The Sun Online Money team? Email us at firstname.lastname@example.org