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Firms braced for tax fines

Revenue & Customs computer fiasco means contractors could face £3,000 penalty

CONTRACTORS are facing fines of up to £3,000 following the latest computer blunder with the CIS tax scheme.

Construction companies are currently trying to file on-line submissions for the 2005-06 tax year.

But problems with HM Revenue & Custom's software mean that returns containing a mixture of CIS and PAYE employees cannot be accepted.

Small firms unable to submit their returns online are missing out on incentive payments of £250.

And medium-sized contractors employing between 50 and 249 staff face fines of up to £3,000 if they fail to file online before May 19.

Tax expert Carolyn Walsh of Insite 123 said: 'The crux of the matter is that the Revenue cannot accept the submissions of the end-of-year returns online if the data contains a mixture of PAYE and CIS workers. Many contractors use different departments in their payroll software to separate subbies from the directly employed, but this is not good enough.

'In effect, contractors should have set up separate data files for each type of worker, which would mean purchasing two software packages. I've spoken to the Revenue about this and all they suggested was rewriting the whole payroll retrospect ively using two separate data f iles.

'Contractors are now stuck between a rock and a hard place. If they do not follow Revenue advice they either lose the right to claim the £250 cash incentive bonus or they could be hit with fines of up to £3,000.' An HMRC spokesman said: 'If you operate PAYE and the Construction Industry Scheme under the same employer's PAYE reference number, you must put your total Construction Industry Scheme deductions from your contractor's Return (CIS36) onto your online P35 in box 8.

'Any contractors with queries about this or any other aspects of the CIS system should contact the HMRC Online Services helpline for advice on 0845 6055 999.'