Building industry warned over tax scheme

The construction industry faces much higher than expected costs from the introduction next month of a new scheme designed to tackle tax evasion, a professional body has warned.

Costs of the new construction industry scheme, which will be introduced next month, could be nearly 10 times as much as official estimates, according to the Institute of Chartered Accountants in England and Wales. It suggests the scheme could cost £250m-£280m a year.

The initiative is the latest version of a special tax compliance scheme that was first introduced for construction workers in 1972 to combat evasion of income tax.

The Treasury expects the new, computerised scheme to cost businesses £22m a year less than the existing scheme, introduced in 1999, which has cumbersome processes involving vouchers, registration cards and certificates. The new version is meant to make compliance cheaper, simpler and easier to police.

But the ICAEW thinks the Treasury has underestimated the difficulties that sole traders and smaller businesses will experience. Anita Monteith, of the tax faculty of the ICAEW, said: "There are all types of problems ahead . . . The smaller firms will suffer most."

The cost of the construction industry scheme had been "vastly under-estimated" before, she said. A recent study of the administrative burden posed by the tax system put the actual costs of the current scheme at more than six times its stated cost.

The Treasury has twice delayed the introduction of the new scheme, after the industry complained it did not have enough time to prepare. It estimates that the annual cost to business of the new scheme will be about £30m, together with one-off training and setting-up costs of up to £60m.

Ms Monteith said the scheme, which requires tax to be paid early, was unfair on construction workers. "It has been used as a way of generating cash for the Treasury for years."

She said that the industry's reputation for dodging tax was no longer deserved.

The ICAEW said Revenue & Customs should concentrate on other sectors of industry where there was a lower tax compliance rate.