SHARES in FreeAgent Holdings have fallen nine per cent after a trading update which indicated that changes to the tax system are impacting on the accounting software specialist.

Edinburgh-based FreeAgent said it expects to report sales of £4.6 million and an underlying loss of £0.4m for the six months to September, broadly in line with expectations.

Chief executive Ed Molyneux said the company had achieved strong revenue growth with an evolving mix of routes to market. It targets the micro-business sector.

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He noted: “Practice sales growth was tempered following changes to IR35 ‘off-payroll’ legislation affecting public sector contractors.”

Changes introduced in April have led public bodies to treat more contractors as employees for tax purposes.

In its annual results statement in June the company said: “Notwithstanding the Government’s recent reforms to the tax treatment for self-employed contractors on public sector projects, we continue to see our greatest success in the contractor focused practice market.”

Mr Molyneux noted yesterday the company has enjoyed continued growth in sales made directly to customers rather than through third parties such as accountants.

FreeAgent has made progress in its relationship with Royal Bank of Scotland. In January RBS said it would offer Freeagent’s software to small business customers of the group.

FreeAgent said gross profit margin remained strong in the first half at 80 per cent.

Shares in the Aim-listed company closed down 8.5p at 82p.

House broker N+1 Singer said of FreeAgent yesterday: “The strength of the group’s product, the go-to-market strategy utilising various channels and the significant addressable market leave us confident of the group’s growth prospects.”