The Association of Recruitment Consultancies (ARC) has said that the extension of IR35 into the private sector is akin to the introduction of a new tax and if the proposals go ahead, this will have far-reaching economic and political ramifications.

Adrian Marlowe, who is the chair of ARC, said: “The proposals are subject to a consultation that declares the new rules are not a new tax.

He added that the consultation document released in March made it clear that the intention is to “seek to increase compliance in the private sector with rules that have been in place since 2000, to make sure they operate as intended.”

However, ARC argues that if the proposals go ahead, they will be going well beyond the original IR35 rules. To back up this view, ARC says that contractors are currently allowed a 5% allowance on their expenses, and this will be kept for those working in the private sector for small businesses, for others this will now be taxed. Another new change is the imposition of employers’ NICs on the ‘Fee payer’ which will typically be the hirer. The amount of employee NICs, employer NICs and PAYE will be calculated based on the gross sum of the company’s invoice. This is another new change as, in the past, the amount was calculated based on the net sums which would be less than the invoice sum. This means that HMRC will be receiving significantly more in NICs and PAYE.