The Recruitment and Employment Confederation (REC) is concerned that proposals to change the way a quarter of all contractors are taxed have not been thought through by the Treasury.

The REC is holding a summit of members this week to find out how they think these new rules will affect their recruitment businesses, the supply of contractors and the flexibility of the labour market.

The Treasury released a consultation on 'Tackling Managed Services Companies (MSCs)' on the day of the Pre-Budget Report – 6th December 2006. Commenting on the consultation Marcia Roberts, CEO of the REC says: "We agree with the Treasury’s aims to tackle abuse within the MSC system. The REC is equally concerned about instances where workers have been transferred to MSCs with little choice and where MSCs do not calculate tax liability correctly."

"However this is only half of the picture. MSCs take away the administrative burden from those who want to work as self-employed. The Treasury has not addressed in any detail what impact the changes to the taxation system will have on our flexible and successful labour market."

"Our summit today will highlight the effect of these changes; namely an increase in the price of labour in areas like IT and construction where huge skills shortages already exist. Vast public sector projects, such as the ID and NHS databases rely on IT contractors to deliver them. The impact of these changes cannot be ignored."

She continues: "One of our prime concerns is the speed at which this new legislation is being brought in. Recruitment agencies cannot begin to plan for the new regime until the detail of these proposals is worked out. It is simply not acceptable to introduce changes to the taxation of a quarter of a million contractors overnight."

"If the Treasury and HMRC want to encourage compliance, they need to give businesses the time to understand the new rules. The Treasury consultation admits that they cannot attempt to enforce previous rules on the taxation of contractors known as IR35. It seems that this botched review will be little better."