The new rules will now definitely come into force next month causing widespread disruption across construction.

Major contractors have been auditing freelancers employed via personal service companies as thousands of professionals are braced for a move back to PAYE.

Current rules allow workers to be employed via a personal service company (PSC) which determines whether IR35 tax rules should apply.

That responsibility will now shift from April to contractors who will determine employment status.

Freelance workers fear they will lose out through higher tax payments while contractors will also face bigger bills from direct employment.

The Budget announcement confirmed: “At Budget 2018 the government announced that it would reform the off-payroll working rules in the private and third sectors from April 2020.

“The government has recently concluded a review of the reform, and is making a number of changes to support its smooth and successful implementation.

“The government believes it is right to address the fundamental unfairness of the non-compliance with the existing rules, and the reform will therefore be legislated in Finance Bill 2020 and implemented on 6 April 2020, as previously announced.”

One contracting boss said: “This is a real headache for us with 20% of our people employed through IR35.”

Another added: “This will go badly wrong. A lot of our engineers are talking about working abroad.

“They also won’t be interested in working overtime and weekends facing 40% tax.

“The government may raise money in extra tax revenue but will lose a lot more in productivity and struggle to find professionals to help build their infrastructure plans.”

Ian Anfield, Managing Director of Hudson Contract said “A growing number of clients have been contacting us after receiving questionnaires and checklists from HR advisors that go way beyond what is legally required.

“The industry is kidding itself if it thinks a checklist and a questionnaire can meet challenges from HMRC.

“Many of these tests will lead to incorrect employment determinations and expose companies to challenge by freelancers.

“Some of the major contractors are confused about the rules, and think it applies to all supply chains not just agencies, employment businesses and intermediaries.

“We are working with clients to ensure they are compliant with the changes.”

Chris Bryce, CEO of IPSE (the Association of Independent Professionals and the Self-Employed) said: “By forging ahead with these disastrous changes, the government risks hollowing out the UK contracting industry.

“Already, many companies across the UK have either declared all their contractors ‘inside IR35’ or scrapped their flexible workforce altogether.

“Understandably, contractors are extremely concerned about this. Many we have spoken to are already seeing work dry up almost entirely, and our research shows at least one in three are planning to stop contracting in the UK.

“The government review of IR35 was recklessly inadequate. Conducted in less than two months, it was not even independently chaired, and its recommendations were ultimately little more than superficial tinkering.

“The changes to IR35 will do serious damage to contractors, clients and the wider economy. We continue to urge the government to rethink this legislation and save the contracting sector while it still can.”