The Treasury is finalising plans to overhaul tax rules which allow self-employed people to avoid paying national insurance contributions.
The move will be targeted at people who set themselves up as private companies to take on work.
announcements that may be in this month’s Budget.
The Treasury believes a third of people claiming self-employed status as a “personal service company” are actually full employees and should pay more tax.
It says without reform, high levels of non-compliance with tax rules could cost HM Revenue and Customs, which collects taxes, £1.2bn a year by 2023.
It is now looking at demanding that firms which use personal service company contractors take legal responsibility for ensuring “off-payroll” contractors stick to the tax rules known as IR35.
A similar move in the public sector on “synthetic” self-employed has raised £410m extra in taxes since 2016, HMRC estimates suggest.
Full employees pay higher levels of national insurance compared with the self-employed.
Philip Hammond is under pressure to raise taxes at the Budget following the Prime Minister’s pledge of £20bn worth of extra spending on the NHS by 2023.
Personal income tax allowances could be frozen, despite a Tory pledge at the 2017 election that they would rise to £12,500 for lower rate taxpayers and £50,000 for higher rate taxpayers by 2020.
Freezing them could raise up to £2bn a year.
Reform of the IR35 rules would not raise as much, but might be less politically controversial.