The plan was originally drawn up in the wake of a row over off-payroll payments for civil servants earlier in the year.
Outlined in its Autumn Statement yesterday, the Government decided not to proceed, because, it said, restrictions on the public sector were "sufficient to prevent the loss through disguised employment in this way".
Doug Baird, managing director of interim manager provider, Interim Partners, said: "Forcing interim managers to pay tax as though they are employees was a terrible idea. The Government's U-turn will be a big relief to businesses that are heavily reliant on skills of interim managers.
"Businesses are particularly reliant on the skills of interim managers at the moment, because of the challenging economy. This would have been the worst possible time for the Government to hit interim managers with a tax grab."
Baird continued: "Interims should not be treated as payroll employees, because they just aren't the same. They do not have the legal protections that permanent employees have. Very often, interims have little job security, with their work coming in peaks and troughs. Interims often have long gaps between short periods of employment."
Recruitment and Employment Confederation (REC) chief executive, Kevin Green, said: " We're very pleased the Government has listened to sense and dropped plans to impose restrictive tax regulation on use of interims and freelancers.
"The Government was completely overstepping by attempting to get involved in restricting businesses' flexible use of experienced managers in this way."
Simon Drake, executive Interim director at HR global services Group, Penna, said: "This decision recognises the value that executive interims provide to businesses in the UK. When organisations suffer a loss in management and leadership or quickly require fresh leadership talent to help them improve or change, highly experienced interim managers are able to quickly step in to strengthen, or sometimes replace, an existing management team and implement change rapidly."
