Based on the government's own regulatory impact assessment, Smith & Williamson corporate tax partner John Newman said the move would only earn the Inland Revenue additional tax and national insurance income between £78m and £156m.
The government justified its crackdown on businesses that rehire staff as personal service companies on the basis that the exisiting arrangements cost the Exchequer £400m a year in forgone tax, and £200m in National Insurance contributions.
But Newman's best guess at the overall taxation yield under the new system is a mere £60m. It would be even less if many consultants carry out their threat to move offshore. He said the government had overlooked the adverse impact on value added tax.
Newman has also warned the government the new legislation introduces a totally new doctrine of tax avoidance which contrasts with existing anti-avoidance provisions which say the substance of a contract overrides the form of a transaction.
'The Chancellor of the Exchequer is launching a dangerous precedent in endeavouring to ignore both form and substance and inserting his own view of a transaction,' said Newman.
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