THE INLAND Revenue is closing the door on accounting scams designed to avoid paying tax and National Insurance contributions.
The move could spell the end for avoidance schemes such as composite companies - where construction workers become shareholders and pay themselves dividends rather than wages to avoid tax.
The Revenue announced its intention in a technical note published alongside Chancellor Gordon Brown's pre-Budget statement last week.
Although the changes are primarily aimed at City bonuses, the move will affect self-employed construction workers.
Paymaster general Dawn Primarolo said: 'Despite extensive reforms to the tax legislation in 2003, employers and their advisers are continuing to devise and operate ever more contrived avoidance schemes.
'One example involves payment of a bonus to an employee in the form of dividends on shares in a specially constructed company.This avoids tax at 40 per cent and employer and employee NI contributions.'
The Revenue estimates that there could be up to £2 billion in 'bonuses' paid this year on which tax and NI is liable because of the 'inventiveness and ingenuity' of the tax avoidance industry.
Although the Revenue will challenge tax arrangements in the courts, it will not await results of any legal action.
Legislation in the 2005 Finance Bill, effective from last week, will close down known avoidance schemes as well as any future scams that emerge - charging NI on them backdated to December.
Ucatt general secretary Alan Ritchie said: 'We welcome the concerted drive to deal with tax avoidance and bogus self- employment which is costing the nation millions of pounds a year and costing our young people apprenticeships.
'We have been showing the Treasury for over a year what has been going on in our industry.We are delighted that these companies are now coming under the spotlight.'
A Construction Confederation spokesman said: 'The consequence of all future legislation on PAYE and NIC avoidance possibly being retrospective and backdated to December 2, 2004 could have very serious financial implications.
'We will need to wait and see just how this policy develops in practice but in the meantime we are warning contractors of the possible outcomes and advising them to seek expert advice if they think they might be affected.'