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Revenue plugs CIS loophole

Panic looms over costs as biggest composite company has its CIS5 certicate pulled

CONSTRUCTION'S biggest composite company has been stripped of its right to be paid gross of tax.

The move by the Revenue casts doubt over the payment system for more than 10,000 workers employed through West Sussex based Gabem.

The firm is contesting HM Revenue and Customs' decision to pull its CIS5 certificate and a High Court hearing is due tomorrow (Friday).

Accounting firms like Gabem are rife in construction and allow workers tax advantages by setting themselves up as one-man companies.

People are paid partly in wages and partly in dividends. This allows them to take home around 15 per cent more than normal PAYE employees.

Contractors taking on workers via this route also benefit from lower National Insurance contributions.

One industry expert said: 'This is going to cause panic in the industry because thousands of people are paid this way.

'Employment agencies pay firms like Gabem gross for the people on their books then the money is handed over as wages and dividends.

'If Gabem can't get paid gross of tax it will slaughter its cash flow.

'The big employment agencies won't deal with companies that haven't got a CIS5 so this decision could cause chaos.'

Chancellor Gordon Brown vowed to crack down on composite companies in the latest Budget as part of his ongoing war against bogus self-employment.

He said: 'There is evidence of some agencies, contractors and employers requiring workers to use corporate structures, thereby denying them employment rights as well as avoiding paying their fair share of tax and National Insurance.'

Gabem managing director Trudy Gordon said: 'In view of a recent decision by HM Revenue & Customs that would affect our business, we are testing the decision in court on Friday July 7.

'We are unable to discuss details in advance of the court hearing, but we can say the HMRC decision would cause us to make major changes to our systems and in the way agency payments are made to us.

'The company is operating normally while we seek to resolve the situation.'

The industry expert said: 'There are major cost implications with this.

'If the Government does stop these companies then labour costs could shoot up by 15 per cent because so many people are employed via them.'

An Amicus spokesman said: 'We have been putting pressure on the Government for some time to deal with this issue of composite companies.'