• Measures would target use of personal-service companies
  • Budget said to include tougher rules for public corporations

U.K. Chancellor of the Exchequer George Osborne will use the budget he unveils Wednesday to announce a crackdown on the use of personal-service companies to avoid taxes.

The measures will require people hired off-payroll to pay employment taxes that are due, according to a government official briefed on the matter who declined to be identified in line with U.K. government practice. The measure is to apply across the public sector, including departments, police, local authorities, the National Health Service, education establishments. The plan also would cover public corporations such as the British Broadcasting Corp., Channel 4, Transport for London, the Bank of England and Network Rail.

The new rules will put the onus on the public body employing the workers to determine whether the pay should be taxed as employment income, according to the official. The government also will issue new guidance to make clear when employment taxes should be paid.

Osborne is counting on a crackdown on tax evasion to help fill government coffers and help him balance the books by the end of the decade. A weakening economic picture and slowing earnings growth have hurt tax revenue, putting the chancellor on course to miss this year’s deficit target.

While personal-service companies can be legitimately used by professional contractors doing short-term jobs for several companies, abuse of the rules is estimated to have allowed about 20,000 public-sector workers to pay on average 3,500 pounds ($5,000) a year less in income tax and national insurance contributions than their on-payroll counterparts.

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