Marcia Roberts, chief executive of the Recruitment and Employment Confederation (REC), has claimed an early victory in her negotiations with the Treasury over new legislation on composite companies.

Speaking to an audience of about 85 in a summit in London last week, Roberts said the Treasury had agreed to draft a revised version of the proposals, which initially could have been interpreted as including recruitment agencies in the definition of such companies.

However, Kevin Barrow, partner at law firm Blake Lapthorn Tarlo Lyons, who feels the proposals have been "poorly drafted", said it may be difficult for the Treasury to re-draft the laws in a way that would exclude employment businesses without creating other loopholes.

Composite companies, and other 'managed service' arrangements, provide services for contractors, relieving them of an administrative burden. Many such contractors work through recruitment agencies.

Legislation known as IR35 was introduced in 2000 to combat "disguised employment". This is where workers claim contractor status purely to reduce their tax liabilities. However, HM Revenue & Customs is having difficulty with the logistics of implementing IR35 and keeping track of who is genuinely a contractor.

The Treasury's latest proposals will further restrict the operations of composites. The most likely effect is that contractors who have previously worked through composite companies will choose to work through Pay As You Earn (PAYE). The changes will create a heavy administrative burden for agencies. Roberts told Recruiter: "Contractors will be asking agencies for advice on tax."

Agencies may also be held liable for contractors' unpaid taxes, in the event of the composite company being insolvent.

Roberts said: "The Treasury is definitely in listening mode." She added that there was a "unique opportunity" to affect the Government's views.

REC is having meetings with the Treasury over the next few weeks. Roberts urged recruiters to make submission to her by 12 February, so REC has the strongest possible case. The consultation period is due to end on 2 March. The proposals are due to take effect on 6 April.

Although many in the industry feel that the timetable is far too aggressive Roberts said that, for now, the treasury was "standing firm" on the implementation date.

Les Berridge of Matchtech Group, speaking at the summit, said that IT recruiters would be worst affected, as this sector had more contractors.

Sandra Robertson, director of operations at Charterhouse, a composite provider, said she had spoken to dentists and others who were now looking to move their base to Ireland as a result of the proposed changes.