HM Treasury



09 March 1999


The Chancellor announced today that changes are to be introduced to
counter avoidance in the area of personal service provision. This
move underlines the Government's commitment to achieving a tax system
under which everyone pays their fair share.

There has for some time been general concern about the hiring of
individuals through their own service companies so that they can
exploit the fiscal advantages offered by a corporate structure. It is
possible for someone to leave work as an employee on a Friday, only
to return the following Monday to do exactly the same job as an
indirectly engaged 'consultant' paying substantially reduced tax and
national insurance.

The Government is going to bring forward legislation to tackle this
sort of avoidance. The Inland Revenue will be discussing the
practical application of new legislation with interested parties and
will work with representative bodies on the production of guidance.
The new rules will take effect from April 2000.


1. The Government is committed to encouraging modern businesses which
develop and build on the strengths and commitment of their workforce.
The aim of the proposed changes is to ensure that people working in
what is, in effect, disguised employment will, in practice, pay the
same tax and national insurance as someone employed directly.

2. Businesses employing their workers directly say that they are
unable to compete with those encouraging the avoidance at which the
new legislation is aimed. As a result, ordinary workers can find they
are unable to compete for jobs with those willing to participate in
such arrangements. But those who do participate often have to pay a
price in terms of loss of protection under employment law. They may
find their terms and conditions altered - perhaps losing entitlement
to sick pay or maternity leave. They may even lose their jobs without
entitlement to notice or redundancy pay. They will usually have no
right to any claim for unfair dismissal and may lose their
entitlement to social security benefits through a failure to make
adequate contributions.

3. The proposed changes are aimed only at engagements with essential
characteristics of employment. They should affect only those cases
where these characteristics are disguised through use of an
intermediary - such as a service company or partnership. There is no
intention to redefine the existing boundary between employment and

4. Legislation is to be introduced to address the problem with effect
from April 2000. However, a primary concern is to minimise any impact
of these changes on ordinary businesses not involved in avoidance. To
this end, the Inland Revenue will over the next few months be working
with representative bodies on aspects of the practical application of
the new rules and on the production of guidance. Any groups
interested in contributing to this process should write to:

Elaine Carey
Personal Tax Division
Inland Revenue
New Wing
Somerset House


These changes buttress the new measures to support small and medium
sized companies. Without the changes it would be very difficult to
target support at genuine entrepreneurial activity - making such
measures less effective and more costly.

Media enquiries to:           0171 438 6706/6692/7327
(Out of hours: 0860 359544)
Non-media enquiries to:       0171 438 6420/6425

Inland Revenue information is on the Internet:

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