Contractors are worried that computer systems being introduced by HM Revenue & Customs will not be able to cope when the new tax regime begins.
Confederation tax director Liz Bridge said: 'Construction companies will be punished for something that is not their fault. If the Revenue's systems fail, why should we suffer? It will be their fault yet they will get in more tax up-front.
'We want these payments to be made gross of tax then the onus is on the Revenue to get their money back. Firms will go bust if they are suddenly moving from getting gross payments to getting 30 per cent deducted.'
Under the new system, contractors have to check a supplier's employment status using an on-line verification procedure.
But fears are growing that Revenue computers will crash while software suppliers have warned that the Revenue has not given them enough time to deliver compatible programmes for companies.
One construction director said: 'The computer chaos isn' t going to be our fault yet we are going to end up paying the price.
'The Revenue seems quite happy because they know they will get their money in quicker in the form of emergency tax.'
The Confederation is now calling on its members to flood the postbags of their local MPs to warn of impending chaos over CIS.
Confederation chief executive Stephen Ratcliffe said: 'We want to make MPs aware of the issue and we are also lobbying the Conservative shadow Chancellor Geoffrey Osborne over the damage we think this will cause the industry.'
The organisation's chairman, Peter Commins, has written to chancellor Gordon Brown ahead of his pre-budget statement in November to press for a face-to-face meeting and a delay in implementing the new scheme.
He said: 'We do not believe we are scaremongering in saying that there will be chaos within the construction industry and that a substantial number of companies will fail because of cash flow problems.' A Revenue spokesman tried to play down contractors' worries.
He said: 'Contractors will not have to check the status of most of the subcontractors who work for them. They will be able to carry on using the tax status they already know.
'The only people who would be affected by a computer failure of this nature would be the very small number of subcontractors starting work for a new contractor while the system was out of order. No decision has been taken what would happen in these circumstances.'