Chancellor of the Exchequer Philip Hammond expanded the off-payroll working rules, known as IR35, to the private sector by 2020.
According to accountancy firm Moore Stephens, Mr Hammond is funding the income tax "giveway" by taking from self-employed workers.
Mike Cooper, partner at Moore Stephens, said with HM Treasury having to find the £9.6bn to fund the rise in the income tax personal allowances and thresholds, the self-employed were an "easy target to hit again".
Yesterday’s Budget increased the personal allowance – the amount an individual earns before having to start paying income tax – by a further £650 in April 2019 to £12,500.
This increase comes a year earlier than planned and will be maintained in 2020.
Mr Cooper said the Treasury was funding at least some of the giveaway on income tax by taking away from the self-employed, to the tune of £1.6bn Class 2 National Insurance contributions up to 2023/24.
Mr Hammond decided to scrap the plan to end Class 2 NICs, which was announced in the 2016 Budget and planned to be introduced this year. This cut was tabled to cost the Treasury about £360m a year from this year onwards.
The move would have hit the lowest earners, who would have had to make up the shortfall with extra contributions to reach state pension entitlements.
According to Treasury analysis, about 300,000 people who make profits of less than £6,000 a year would have had to pay five times more in state pension contributions than they currently do if the cut was implemented.
Mr Cooper added: "When this is added to the expansion of the rules on off-payroll working to the private sector, this is another Budget that will hit contractors very hard indeed."
The extension of the off-payroll working rules to the private sector will imply that contractors such as IT and management consultants who work through their own company but are in practice employed by a third party, pay the right tax as employees.
According to the Treasury, the taxpayer could be missing out on up to £1.2bn a year by 2023 as a result of people getting the rules wrong, and incorrectly paying tax as if they were self-employed.
Tax experts have said IR35 can reduce a worker’s net income by up to 25 per cent, costing the typical limited company contractor thousands of pounds in additional income tax and NICs.
Last April, the government reformed off-payroll working in the public sector, successfully increasing compliance, it said. The change has meant £410m in additional revenue for the taxpayer.
Chris Bryce, chief executive of trade body the Association of Independent Professionals and the Self-Employed (IPSE), said: "The self-employed contribute a staggering £271bn to the UK economy each year, and give the country one of its greatest competitive advantages – flexibility.
"The government’s smash-and-grab mentality will therefore punish the overwhelming majority of genuinely self-employed people, heap a massive administrative burden onto businesses at a time of Brexit uncertainty, and also undermine one of the UK’s most dynamic and productive sectors."
maria.espadinha@ft.com
