Tax reprieve won

Transitional tax arrangements for the introduction of the new Construction Industry Scheme have been extended to 5 November.

The Inland Revenue (IR) decision comes a week after it had agreed to a one month extension as a result of a meeting with major contractors (see CJ 14 July).

Contractors will now be able to accept a registration card, temporary tax payment card or certificate details where the document is photocopied onto the subcontractor's original headed paper.

This will allow contractors to pay their workers and complete the appropriate vouchers with the correct information but give subcontractors the time they need to present their documents in person.

The IR has made it clear that it will not seek penalties from any contractor who operates within the transitional arrangements, but has warned that from 5 November the new CIS regulations will apply in their entirety to the construction industry.

Stephen Lane, a tax partner at law firm Masons, claims that many companies will find themselves in a dilemma. "They must decide whether to break the law from 1 August and pay subcontractors, or to comply with the law, not to pay the subcontractor and face the option of the subcontractor ceasing work and therefore the contractor falling foul of contractual time limits and obligations to pay will not be faced."

However Les Angell, chairman of the construction industry's Joint Taxation Committee, believes the industry had been heading for "complete chaos" before last Wednesday's decision.

"A recent survey of 50 businesses carried out by the Construction Confederation showed that they had less than 8,000 CIS cards and certificates when they expected to see around 90,000," he said. "Of these almost 2,000 had been rejected because they were photocopies of CIS 6 certificates, or had inadequately prepared certifying documents or the contractor named was not the contracting party. The result would have been an unprecedented payment crisis and construction work would almost certainly have ground to a halt."

Angell added that contractors must apply for their certificates now. "It could take many weeks to process new applications and once the certificates are issued they need to be presented to contractors' clients. Contractors must not be lulled into a false sense of security by this postponement."