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Time to dump CIS scheme?

Leading accountants call for industry-wide debate on future of construction tax

LEADING accountants believe the CIS tax scheme may no longer be needed in construction.

Members of the Institute of Chartered Accountants are calling for an industry-wide debate over the whole future of the CIS, which is due to be relaunched next April.

The call follows a survey by the institute that discovered pass rates of more than 90 per cent among contractors and individuals renewing their CIS certificates.

Institute construction expert Howard Royse said: 'That is far and above the Revenue's stated figure of 75 per cent.

'With such a high compliance rate we have to ask the questions: has CIS done its job and do we need to keep it going?'

Construction was made a special case by HM Revenue & Customs in 1972 when a separate regime was set up to deal with cash-in-hand payments and endemic tax avoidance.

The scheme has been through several changes and will be introduced in its latest reincarnation next April.

Mr Royse said: 'The purpose of CIS is to identify people who should be paying tax and make them pay the correct level of tax.

'If that has virtually been achieved then do we need it to continue? We want to see a debate on this issue in the light of these results and backers of CIS need to explain why it is still needed. It creates a lot of red tape and admin issues at the moment.'

Abolishing the scheme would mean companies and individuals facing general employment status laws like all other industries.

Mr Royse said: 'The average subcontractor would just operate as normal and get paid gross as long as they are genuinely self-employed in the eyes of the law.'

The institute's survey of CIS inspectors across the country recorded a compliance rate of 97.3 per cent for CIS 5&6 applications and for renewals in Scotland and an average of above 90 per cent across the UK.

Mr Royse said: 'There areissues in respect of employment status but it is rare for a construction business to lose its certificate over status problems. Late payment is a much more common reason for disqualification, but non-construction industries can pay as they like with impunity.'

HMRC is due to present its final business case to Chancellor Gordon Brown by August.

The decision on whether to have a discrete scheme for construction is one for ministers.

'The Government has announced that it will introduce the new construction industry scheme in April 2007, the necessary legislation is in place and HMRC is working towards its smooth introduction, ' a HMRC spokesman said.