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Holiday pay in Treasury's sights

Loss of tax exemption worth £38m could hammer industry benets provider B&CE

CONTRACTORS could lose tax breaks worth more than £38 million a year under plans being considered by the Treasury.

The move could also sound the death knell for industry benefits provider B&CE.

Construction companies have enjoyed a National Insurance exemption since 1979 on holiday pay collected through B&CE.

And the break is worth around £175 a year for every directly employed building worker.

Around 6,000 companies are members of the B&CE's holiday pay scheme handing over contributions for 220,000 workers - making the NI concession worth more than £38 million annually.

Firms do not profit from the exemption because they use the cash to pay for other benefits from B&CE including accident and life cover and the EasyBuild stakeholder pension scheme.

But other industry sectors like retailers have spotted an opportunity and are now taking advantage of the tax break without ploughing the savings back into benefits for workers, prompting a Treasury review of the measure.

B&CE chief executive Brian Griffiths said: 'The exemption underpins our template scheme of benefits. Obviously there will be companies who look after their staff who would continue to pay into the scheme, but there are others who would decide that the cost would be too much.

'The scale of our operation and our not-for-profit status allows B&CE to provide free and low-cost services to around 6,000 contractors of all sizes in the industry.

Without the concession this would need to be reviewed.'

As well as its stakeholder pension, B&CE provides accident cover of up to £17,500 a year and life cover worth up to £42,000 a year for scheme members.

Bob Blackman, construction secretary of the T&G transport union said: 'The loss of this concession would be catastrophic.

There is already an under-provision of pensions in the industry and the benefits package has been one of the few quality things to fall back on when the industry was going through bad years.'

The Construction Confederation has joined the B&CE's campaign to protect the NI concession and has raised the issue in its Budget submission to chancellor Gordon Brown.

The B&CE is also set to raise the issue with MPs.

The confederation's tax expert, Liz Bridge, said: 'The Treasu ry is look ing at avoidance schemes and the fear is that this one will be swept up with the same brush. Anything that provides an incentive for people to save for their pensions is important.'

The exemption - contained in the Social Security (Contributions) Regulations - was retained when the legislation was last reviewed in 2001.

An HM Revenue and Customs spokesman said: 'HMRC continually monitors and reviews the operation of the exemptions. It is a matter for ministers whether there is any change in the rules.'