Britain will close a loophole that has allowed some employers to avoid paying payroll taxes by routing wages through overseas intermediaries, the Treasury said on Saturday.
It said over 100,000 people working for British firms were employed through payroll agents based in offshore tax havens such as Jersey, costing the government almost 100 million pounds ($150 million) a year in lost revenue.
In many cases the workers - mainly temporary agency staff such as teachers, nurses, and oil and gas crews - were unaware the taxes were not being paid or that as a result they could lose their entitlement to state sickness or maternity benefits.
Treasury minister Danny Alexander said measures to end the practice would be introduced in the government's budget statement on March 20.
"British firms employing British workers must pay British taxes. This is just one part of a bigger package we will introduce at the budget next week," he said.
The new measures would come into force from April 2014, the Treasury said.
Payment of taxes has become a hot political issue in Britain as the government squeezes spending to reduce its budget deficit.
Multinationals such as Starbucks, Amazon and Google have come under fire for using legal maneuvers to cut their tax bills, although there was no suggestion they were using the payroll loophole.