Trade body APSCo will write to Whitehall this week warning that legislation introduced last month could leave the Government open to a legal challenge.

The recruitment body fears the changes expose its members to great a risk in the complicated world of construction payroll arrangements.

Samantha Hurley, Head of External Affairs and Compliance at APSCo, said: “We are of course in favour of measures to curb tax avoidance and fully support the efforts of HMRC in its endeavours, but what we cannot support is burdening the recruitment sector with a tax liability over which it has no control without giving some form of statutory defence in the event of the unscrupulous behaviour of intermediaries further down the supply chain.”

“We are certainly not arguing for the removal of the legislation altogether – but what we are asking for is a defence for recruitment firms in the event that they have undertaken reasonable due diligence – a defence which already exists in the Agency Workers Regulations.”

“The legislation does include a defence for recruitment firms against the provision of fraudulent documents by other parties in the supply chain, but we believe that this is a red herring as the reality of this situation is that the onus would be on the intermediary to prove not only that fraud had taken place – but also that there was an intent to defraud.

“We will be writing to The Treasury outlining not only the concerns summarised above but also the fact that not providing for a statutory defence poses a major legal risk for the Government itself – a risk which is entirely unnecessary.

“As we are not asking for a removal of the legislation itself, we very much hope that the Government will see reason and provide the amendment needed to make the legislation reasonable, proportionate and above all legally robust.”