New rules to close a tax and National Insurance loophole could catch out contractors, small businesses and self-employed people.

The warning by business adviser BDO Stoy Hayward has led one of its Sussex spokesmen to urge vulnerable small enterprises to take extra care.

Alan Beale, tax partner in BDO Stoy Hayward's Brighton office, said every contract needed to be examined carefully to see if they will be caught by the new rules.

He said: "There may be steps they can take to avoid being caught in this potential trap."

IR35 involves workers who provide their services through an intermediary personal service company.

These workers may choose to receive money in the form of dividends rather than salary or retain significant profits in the company, so avoiding payment of National Insurance contributions of up to 22.2 per cent.

The new rules apply where the worker would be an actual employee of the client were it not for the intermediary - which could be either a company or a partnership.

IR35 says for all income generated in such arrangements (less allowable deductions), the intermediary will be liable for PAYE tax and National Insurance.

In other words, the worker will be treated like an employee.

The sectors likely to be included on the Inland Revenue's A List will be IT and engineering.

But many other industries could be affected in due course.

Mr Beale said: "As there is no legal definition of the word 'employment', a judgement has to be made based on a number of indicators.

"These include control, basis of payment, provision of equipment and integration into the customer's workforce.

"Identifying relevant contracts can be difficult in borderline cases.

"Responsibility lies with the intermediary to ensure the new rules are applied correctly," he said.

"The overall effect of this legislation is the danger of increasing PAYE and National Insurance liabilities.

"If anyone thinks they may be affected by IR35, they should seek advice immediately."