Officials set to announce three-month moratorium on new scheme after talks with major contractors.
The Inland Revenue is considering introducing transitional arrangements to ease the changeover to new tax procedures at the start of next month.

After a meeting between major contractors and Revenue officials on Monday, it is understood that existing tax procedures may be allowed to run alongside the new system until November.

The meeting was prompted by a survey of the Construction Confederation’s 32 biggest members. This found that few subcontractors were ready for the new tax system.

Another meeting was to have been held on Thursday to iron out details of a contingency plan.

A Revenue spokesperson said: “The industry has come to the Revenue with its concerns and we will be meeting them again and feeding our officials’ decisions back to ministers. It is up to them to decide what action to take.” The survey, carried out last week, discovered that only 7% of main contractors’ suppliers had provided the tax details required before they can be paid under the scheme. Many have been slow to apply for the appropriate tax certificate. But, even some of those that applied early have yet to receive their documentation.

The Construction Industry Scheme – which will replace the 714 system, under which most subcontractors are paid gross – will see many more labour-only subcontractors taxed at source.

As the 1 August introduction date for the Construction Industry Scheme is stated in primary legislation, it cannot be overturned. However, it is hoped that the transitional arrangement, if agreed, would cushion the impact of the new system.

The industry has come to the Revenue with its concerns and we will be meeting with them again. It is up to ministers to decide what action to take

Inland Revenue Spokesperson

Under the proposed three-month tax moratorium deal, it is understood that no more concessions would be made after 1 November. Subcontractors that had still failed to obtain CIS5 and CIS6 cards, which allow them to pay tax at the year end, would receive a CIS4 card and be taxed at source.

Construction Confederation director of taxation Liz Bridge said: “The industry was very concerned because our survey showed such poor results, so we approached the Revenue to discuss contingency plans.” She declined to comment further.

Many horror stories have emerged about the Construction Industry Scheme in recent weeks. Main contractors must register for payment certificates to allow them to be paid by clients, but even their well-resourced tax departments have had headaches.

The tax manager at one major contractor said a joint-venture company, through which it carries out much of its work, had applied for a certificate last December but received approval only last week. The certificate now has to be printed, a process expected to take another three weeks. The tax manager said this left the joint-venture facing the uncomfortable prospect of asking clients to pay its two partners (which have their certificates) separately.

The tax manager at another major contractor said that even those subcontractors that have obtained certificates, have struggled to get the details correct.

Alastair Kendrick, a director of entrepreneur services at accountant Ernst & Young, said: “The whole process is looking like an absolute disaster.