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Industry tells HMRC that tax scheme is a burden

Four in 10 respondents to an HM Revenue and Customs survey believe the Construction Industry Scheme is a burden on contractors.

The CIS scheme, the method by which construction companies pay tax, was amended in 2007.

It requires firms to provide monthly statements to all subcontractors paid gross, along with a return to HMRC, and to pass directly to HMRC any tax deductions made from payments to subcontractors.

Half of 7,000 firms surveyed by the HMRC said the nature of the scheme showed that HMRC did not trust the industry. However, almost a third admitted the industry would always find ways to avoid paying tax.

The study, Evaluating the Construction Industry Scheme, found 65 per cent said the new tax scheme is simpler to administer than the old scheme.

But Alistair Kendrick, director of employment tax services at accountants Mazars, said the report failed to address several of the major tax problems faced by the industry.

He said key issues included lack of compliance with tax rules on self employment by some firms, removal of “gross payment” tax status from some businesses and difficulty in registering subcontractors.

A number of subcontractors had lost gross payment status – the right to pay tax themselves rather than having it deducted by the main contractor – because they made errors or broke rules, he said. Losing this status can damage the subcontractors’ cashflow.

He said: “This report seems to suggest everything in the system is fine; I do not think that is the case.”

A spokesman for HMRC said contractors only lost their gross payment status if they broke published rules, but could appeal and HMRC would listen to reasonable excuses.

He said the report tried to get feedback from the industry.  “We took steps to ensure the research reflected the opinions of all Construction Industry Schemecustomers both in the design of the survey, and in ensuring it was conducted by an independent research organisation - Ipsos Mori,” he said.

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