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Online tax will cripple subbies

Computerised CIS tax scheme will penalise contractors for mis-spelling workers'names

SOFTWARE experts are warning that the Inland Revenue's new computer system for the CIS tax scheme will plunge the industry into chaos.

Dennis Keeling, head of software body Basda, said: 'We have had one Government computer disaster after another - tax credits, National Air Traffic Control, Child Support Agency - and still they never learn.'

The trade association claimed subcontractors would be stripped of their self-employed status if they make a single spelling mistake in the new electronic tax returns, which come into force in April 2006.

Subbies will have to pass a Tax Treatment Qualification Test from 2006 to determine whether they are paid net or gross of tax.

Mr Keeling said the new computerised system would automatically bounce firms into paying tax at source if mistakes are made on electronic returns.

He said: 'From 2006 a mis-spelling of a trading name could mean 'unrecognised'status being put onto an existing subcontractor at the verification stage, forcing them to pay a penalty tax of 30 per cent on all payments until the matter is resolved.

'Considering the opportunities for error in spelling the names of thousands of Eastern European building workers and the chaos that might ensue on a huge site like T5, the mind boggles.'

Under the new system subcontractors register their details with the Revenue which are then checked by main contractors when they employ them to see whether they should be paid gross or net of tax.

Fears of a meltdown are backed up by tax expert Alastair Kendrick, who is a director of accountant Ernst & Young.

He said: 'It makes you wonder if the Revenue really understand the industry.Most contractors engage subcontractors at site level and data will have to be entered electronically about them.That will involve calls from site to head office, then to the Revenue, and the potential for mistakes is huge, because the system is far too complicated.'

The association also warned that CIS information will be checked against other Revenue databases and any missing or late returns for firms or individuals will result in gross tax payment being suspended.

Mr Keeling said: 'CIS legislation has been interpreted with discretion by tax inspectors but that will not be he case in the future when the whole system is computerised.

'Computers are not known for their consideration in assessing the rules - they obey them blindly.'

The association is now joining calls from the Construction Confederation to have the electronic scheme's introduction delayed by at least six months.

Revenue databases and any missing or late returns for firms or individuals will result in gross tax payment being suspended.

Mr Keeling said: 'CIS legislation has been interpreted with discretion by tax inspectors but that will not be the case when the whole system is computerised.

'Computers are not known for their consideration - they obey rules blindly.'

The association is joining calls from the Construction Confederation to have the electronic scheme delayed by six months.

A Revenue spokeswoman said: 'It has always been important that personal details held by us are up to date.With increased computer support that remains true.

'We are working to help ensure subcontractors and contractors know the details we hold so they can supply us with information that will allow a match with departmental records.

'Compliance with obligations to make payments and returns on time will remain a condition of a subcontractor being entitled to receive payments gross.'