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The incomes of up to 800,000 self-employed workers could be hit if the government decides on Wednesday to increase employers' national insurance contributions, tax experts say.
Chancellor Rachel Reeves is understood to be considering the move as part of her plans to raise money to rescue Britain's ailing public services.
Employers pay tax at a rate of 13.8 per cent on income over £9,100 a year. Labor has claimed the budget will not affect workers, but tax experts say certain self-employed workers could end up footing the bill.
Those who work for so-called umbrella companies could lose out, said Rebecca Seeley Harris, employment situation expert and founder of ReLegal Consulting.
Umbrella companies employ contractors for temporary work, who are often paid through recruitment agencies.
But workers who use them may find that they are paid a flat rate gross of all taxes. This means that if employers' national insurance increases, it will affect their take-home pay, he said.
Currently, an employer pays £2,884.20 in business national insurance for a worker earning £30,000 a year. An additional two percentage points would increase that figure by £418 a year.
“Potentially, if there is a rate increase by the employer, it will end up reducing the amount the worker receives from the umbrella company because of the way the salary is structured,” he said. “The allocation rate is the rate they tell workers. They might say you'll earn £500 a day. The problem is, when the worker actually receives it, all the taxes, the margins, everything comes out of that £500.”
While general workers are typically associated with IT, the NHS also employs many people using the salary structure.
However, the rules around paying taxes as a contractor have come under increased scrutiny lately. Receiving payments through a company was considered a good way to pay less taxes before the government cracked down.
Well-paid self-employed workers, including BBC presenters, were forced to face huge tax bills after the authorities decided they were abusing a system designed to help genuine small businesses that had variable work, probably from various sources .
The use of these personal service companies allowed workers to avoid national insurance payments and also receive payments through dividends, which are taxed at a lower rate than income.
Employers will examine the new budget measures along with the 6.7 percent increase in the minimum wage and also the government's proposal to strengthen employee rights.
The minimum wage, or national living wage for over-21s, will rise from £11.44 to between £12.12 and £12.20 from next year.
The Low Pay Commission, which advises the government on the national living wage, has said it expected the level to rise to £12.10, but stronger earnings growth has driven a bigger rise.
Labor will also ban exploitative zero-hours contracts and “unscrupulous” firing and rehiring practices which it said will benefit millions of workers.
