The Inland Revenue seems to be trying to drive small companies out of business with its punitive new tax system.
National Construction Week was celebrated in my local paper with a half-page Inland Revenue feature on its Construction Industry Scheme, headlined "New tax systems in construction".

It was supported by a Construction Industry Training Board "wanted" poster for "construction employers to train an apprentice for the millennium" – presumably dead or alive.

Alongside it was a notice from the Revenue telling subcontractor suspects where they must go to be registered, identified with mug shots, and generally sign away whatever civil rights they, as a small construction partnership or company in the UK, might have left.

Not quite the positive impression of the industry that National Construction Week was aiming to foster.

The industry collects hundreds of millions of pounds every year in income tax for the Revenue. Our reward has been to be branded as fraudsters to justify the electronic tagging of all companies through the CIS.

The CIS rules say that, from 1 August 1999, every firm in UK construction will have to register to claim a CIS certificate or identity card. The system replaces the 714 tax deduction scheme on that day.

This regime means:

  • Clients spending more than £1m a year in construction must register

  • All contractors must register

  • All subcontractors must register

  • Subcontractors with a labour turnover of less than £30 000 a year for every partner or director will have tax at 23% deducted by the contractor and be unable to claim a rebate until the end of the year. They must collect all payments in person presenting their CIS4 photo-ID card each time

    The Revenue told one contractor it would make an exception, despite the fact that two years ago, he was three days late paying a bill

  • No one in the supply chain is allowed to pay anyone below them unless they have a CIS certificate or registration card on pain of a £3000 fine

  • Main contractors are barred from helping subcontractors with temporary cash advances to help them through the double tax period. If their CIS card is late, that's just tough

  • Paper and electronic bureaucracy and its cost for clients, contractors and subcontractors is expected to double

  • Possessing a CIS registration card or certificate still does not guarantee the holder self-employed status.

    As a result, many competent subcontractors and small companies will disappear from the legitimate industry into the unregulated domestic sector.

    Subcontractor prices are rising, as is the cost of direct employment, as unionised labour demands ransom payments.

    The number of quality recruits entering construction will decline yet further. What dynamic young person will want to enter an industry that is advertised as criminal by the Revenue and where the opportunity to set up your own company is effectively barred?

    It may be a little over the top to suggest that the CIS is the Revenue's ethnic cleansing of construction. But there is no doubt that the CIS certificate or card is a thinly disguised licence to trade in construction, controlled by a suspicious Revenue with a hidden agenda of driving small companies out of business.

    A small, highly respected local contractor I know told me how he had applied very early for his CIS certificate. The Inland Revenue informed him that it would make an exception this time and issue a certificate, despite the fact that (shock, horror) two years ago, he was three days late paying one monthly tax bill. If such a transgression happened again, the Revenue told him, his certificate would not be renewed and his business would be forced to fold.

    It is, of course, too late to change anything now – what we need are some innovative damage limitation strategies – but what can the UK's 200 000-300 000 small firms do? They are too scared to risk a telephone call to one of the Revenue's helplines, and few of them are members of any trade association – which, in any case, appear to be in league with the Revenue, the major contractors and the specialists, and can no longer be trusted to act in the interests of their smaller members.

    • Postscript

    Colin Harding is chairman of Bournemouth-based contractor George & Harding.