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Contractors are paid as normal, but the money is delayed in the company's books, allowing them to avoid paying VAT.

Treasury chiefs are now determined to stamp out the practice.

Dawn Primarolo, financial secretary to the Treasury, said: 'Customs has acted quickly to tackle this blatant avoidance scheme being marketed by some leading accountants.'

Tax experts say contractors will have to come to terms with the new rules because they will have a negative impact on contractors caught in payment rows.

Martin Scammell, VAT partner at accountant Ernst &Young, said: 'There must be a problem with bad debts and also potential problems with retentions.

'As soon as Customs & Excise says it's 'anti-avoidance', people will believe it's a good thing but it affects all sorts of people.'

Celia Brennan, senior manager at KPMG, said: 'We are only really looking at situations where there have been very long retentions or where there is a dispute.'