Changes will cut paperwork, but unions say it will encourage “bogus self-employment”.
The Inland Revenue has cut the rate of tax deducted from subcontractors who hold CIS4 cards under the Construction Industry Scheme.

From 6 April, self-employed holders of CIS4 cards, who are taxed at source, will have 18% of earnings deducted instead of 23%. This means that CIS4 card-holders who earn less than £30 000 a year will pay less tax than directly employed colleagues.

The change has surprised the industry. Construction Confederation tax expert Liz Bridge said: “We were expecting a change in the rate in August when the scheme started, but not now.”

The decision comes after repeated requests from the confederation for the Revenue to reduce the amount of paperwork that small contractors have to deal with under the scheme.

A spokesperson for the Revenue said: “This lower rate will be closer to the final liabilities that subcontractors are due to pay and will therefore allow them to keep more of the payments made to them throughout the year.”

Bridge said: “I’ve mixed feelings about the change. For those who do not get paid gross, it is a relief. However, for those firms struggling to get a directly employed workforce, and that are therefore required to pay tax at 23%, this proposal is not good news.”

She added: “There is a minority of people in the industry who do cut corners and do not respect the law. They will find the 18% deduction very interesting.”

Construction union UCATT condemned the tax cut. UCATT organiser Jerry Swain said: “This will assist those who abuse the system. Unscrupulous employers will use this lower rate to force workers into bogus self-employment.”

Swain accused the Revenue of not having the courage to police the industry and ensure that operatives were properly employed on PAYE.

Announcing the change, paymaster-general Dawn Primarolo said she had asked the Revenue to respond to concerns about the administrative burden on firms. It comes after a meeting last week between Primarolo, the Construction Confederation and the Joint Contracts Tribunal in which Primarolo said the scheme had flaws.

The confederation warned the Revenue that if the scheme was not amended, it would launch a campaign and lobby for its abolition.