Revenue slammed over CIS tax system

by Graham Ridout



Leading accountancy and business organisations have slammed the Inland Revenue over its handling of the new tax system - the Construction Industry Scheme (CIS).

Peter Gravestock, the Association of Tax Technicians' (ATT) expert on the CIS, said: "The scheme was falling apart even before it started. Now our concern is that people can't operate the scheme and it will inevitably lead to people being tempted to pay cash and work off-book."

Gravestock said: "The Inland Revenue says that if you have someone who has not got a CIS card or certificate, you can't pay them. The Inland Revenue must live in a different world from me because we all know that people will just pay cash-in-hand to get the work done."

The ATT would like to see a move away from issuing CIS 4 deduction cards towards issuing exemption certificates. At present, individuals or firms with a CIS 4 card have 23 per cent of their payments deducted at source to cover taxes. Only people earning over £30,000 can apply for a CIS 6 exemption certificate. Gravestock explained: "In many parts of the UK, perhaps with the exception of London and the South-east, people are earning less than the £30,000 limit. But if they have to employ other people on a job to get the work done, they are put in a position of having to pay 100 per cent of their costs out of the 77 per cent they receive in return. And that leaves people with a serious cashflow problem."

Richard Shooter, chairman of the Institute of Chartered Accountants' tax monitoring group, concurred: "Cashflow is vital and if self-employed people look at what they are being paid and say, 'I can't survive on this,' then that can lead to fraud or people working for the black economy."

David Brown, the Federation of Small Businesses' expert on CIS, said: "I am aware of cases where operatives, who could not get an exemption certification, are looking beyond the scheme for payment. It may not be fraud but it is certainly a loss of revenue to the Inland Revenue.

"Under the old system anyone who wasn't on PAYE or held a 714 certificate, would have tax deducted on a CS60 certificate. Although the system wasn't perfect, it wasn't as incredibly difficult and complicated as the new scheme."

Brown had been consulting with the Inland Revenue on FSB's behalf for seven years before the scheme was introduced in August. He said: "My initial concern when the scheme was announced last November, was that it was totally unworkable and that the Inland Revenue was trying to introduce it too quickly. Since then, nothing has been done to make me change my mind."

Earlier this month, the FSB meet with an Inland Revenue audit team to discuss changes that could be made to the scheme. Brown said: "I am sure the audit will produce changes. The present system is too bureaucratic and too restrictive."