IF THEY can ease themselves away from seasonal celebrations, thousands of workers - and some pensioners too - might ponder the pre-Budget Report and wish the Chancellor had left them off his "present" list. Wrapped in red ribbon and smart wrapping paper is Mr Brown's kind thought for workers like freelance nurses and teachers offering their services - often for short periods or part of the week - as members of Managed Service Companies (MSC). It's an arrangement which suits both sides: the client ("employer") gets work done, without adding staff to the payroll, and can end the arrangement if the workload falls without redundancy hassles. From the workers' viewpoint, a MSC might offer shares in the company, so each month they collect a salary and dividend payment as a gross sum, while self-employed status lets them make their own arrangements on tax and national insurance and to charge expenses incurred against income. Francesca Lagerberg, senior tax partner at accountants Grant Thornton, says many migrants work in MSCs - in sectors like construction, information and telecommunication, engineering, contract cleaning, transport, besides healthcare and teaching. "Many people on around £30,000, often less, were enticed into MSCs", says Ms Lagerberg. "It gives the advantage of a corporate structure, but none of the hassle - somebody else runs the business. "It was known Government was unhappy, but the surprise is how draconian these new rules are. From April, 2007, MSCs will be compelled to deduct PAYE tax and Class I National Insurance contributions at source. "Many workers will wonder if there is any point staying in a MSC - and there is a worry low-income workers in essential services, like nurses and teachers, could suffer if they have large mortgage commitments." The new rules don't affect those who work entirely by themselves - although, to retain self-employed status, they must satisfy the IR35 legislation of 2000 and convince the taxman that they do not work like employees of companies hiring their services. Now what's this Christmas cracker, buried deep in Chapter 5 of the pre-Budget Report and waiting to explode? Up goes the standard rate of tax deduction on construction workers from 18% to 20%, with a higher rate of deduction of 30%. Says Ms Lagerberg: "Lower-paid construction workers could find themselves in the position of suffering tax at source and having to reclaim tax at a later date." However, it's the Chancellor's special surprise for affluent pensioners which has infuriated families who thought they had found a way of preserving wealth in the "A day" pension reforms announced in April this year. | 
