Reforming tax rules for the self-employed would create "chaos" and is most likely to affect the IT industry, freelancers and lawyers have said.
Reports claim the Treasury is planning to overhaul tax rules that allow self employed people to avoid paying national insurance contributions.
The move targets contractors taking on work as a 'personal service company' and could be announced at this month's budget.
Firms using a personal service company may be urged to ensure that off-payroll contractors stick to tax rules, known as IR35.
Sudeep Sakalle, 37, a freelance IT professional, said: "This is coming at a difficult time. There is uncertainty in the market because of Brexit and the cost of things are going up.
"A lot of freelancers depend upon buying raw materials from Europe. Whether it is building contractors or freelance IT professionals, our challenges will go up.
"The profit [after taxation] will be less anyway and on top of that the struggle to prove your income will make it more chaotic."
As per reports, the Treasury believes a third of 'personal service companies' employ a number of people and should therefore pay more tax.
Contractor Calculator, which gives advice to the self employed, describes a personal service company as having a sole director, i.e. the contractor, owning most of the shares.
Contractors taking on work as a personal service company tend to split their income between salary and dividends. This means they do not pay employers and employees class 1 national insurance contributions on a large part of their overall income.
The IR35 legislation has been called as a means to generate additional tax revenue for the Treasury by treating service providers, such as contractors, as employees.
The speculation of a possible reform to the legislation rules could affect self employed contractors working as a personal service company.
Freelancers to charge more
Mr Sakalle said the move may be seen as a favourable one from the government's perspective but it would raise the cost involved for self employed people.
He added: "Freelancers working at a fixed price would have to charge more for their services. Companies would be paying 12% to 35% more to freelancers.
"It will affect me personally. I bill people based on what is going out and coming in, but also on the cost of raw material required.
"It will become more competitive, but there will still be some people who will be able to evade tax."
IT is one of the industries that is most likely to be affected by the overhaul of tax rules, according to legal experts.
A February 2017 report by The Association of Independent Professionals and the Self Employed (IPSE) said there were over 2 million freelancers in the UK that contributed £119bn to the economy.
It added that 21% of all freelancers worked in professional, scientific and technical industries, and IT & telecommunications professions formed the fourth largest freelance group.
Vicash Ramkisson of Duncan Lewis said: "IT companies and smaller companies have freelancers in their books that offer consulting services to businesses.
"IT is also an industry that is very project-based. So instead of taking on employees, the easiest way for companies is to take on freelancers."
The health industry may also be affected by the change in tax law for the self employed.
The IPSE report estimated that freelance health associate professionals have increased by 191% since 2008.
Health industry
Dr Madhangopal Jagannathan, a Kent-based GP, said: "If the tax for self employed people comes in, it is going to affect a lot of doctors who freelance.
"The government wants to recuperate money from self employed people, who are not entitled to medical leave or other benefits.
"In my opinion, they want to get people to take up salaried jobs because they are more lucrative than locum [temporary] jobs.”
The Treasury has said that high levels of non-compliance with tax rules could cost HM Revenue and Customs (HMRC), which collects taxes, £1.2bn a year by 2023.
The government reformed rules for off-payroll work engagement in the public sector in April 2017. HMRC estimates that it raised an additional £410 million in taxes that financial year.
Chancellor Philip Hammond failed to get Parliamentary support in March last year to increase national insurance contribution for the self employed and had to abandon the move.
The recent speculation over reform to the IR35 has been met with resistance from representatives of contracting industry.
David Chaplin, chief executive of Contractor Calculator, told the BBC: “The Treasury's claim that it is losing money is based on an ideological flaw.
“It fails to acknowledge the 'freelance premium' that individuals charge for their services, compared to what they earn when they are in full-time employment.
"That fact alone should blow IR35 out of the water, yet HMRC maintains that individuals are avoiding tax. This isn't true.”
A spokesperson for the HM Treasury told the Asian Voice they can not comment on speculation.
