Chancellor denies climbdown on new IT self-employed tax

The Government will stand firm on controversial plans aimed at ending potential tax loopholes for information technology workers, despite suggestions of a climbdown.

Gordon Brown, the Chancellor, yesterday rejected claims that there were critics of the IR35 tax within the Cabinet, insisting that the tax change had been subjected to full consultation.

The IR35, included in last month's Budget and coming into force today, will tax self-employed IT workers as members of a company staff liable to income tax and National Insurance contributions. It is targeted at one-person Personal Service Companies set up solely to dodge the financial obligations on normal firms.

Treasury sources later added that the Finance Bill, to be published today, would include draft clauses on new rules for double taxation relief. The Tories, backed by major companies, have claimed that the changes could cost business billions of pounds.

Richard Ottaway, the Opposition Treasury spokesman, claimed that concerns about the "stealth tax" had been raised by the minister for e-commerce, Patricia Hewitt, as well as the Government's e-envoy, Alex Allan, and by the Confederation of British Industry. Mr Ottaway referred to newspaper reports of an imminent climbdown to prevent an IT brain drain.

He told Mr Brown: "Will you accept the advice of the CBI as far as IR35 is concerned?

"It's not just this party who says you're wrong, it's your own party as well."

The Chancellor replied: "No, it is not the case that we are under pressure from either of the people you mention, and it's quite clear that you have no documentary evidence to prove it."

He said: "As far as IR35 is concerned we published our measures last April, there was a discussion period and a consultation document, we made our decisions last summer.

"These decisions are the right decisions for this country. It is fair that everybody should pay a fair rate of tax and there should not be tax avoidance. It's about time the Opposition supported fair tax as well."