Revenue Blitz

Contractors are bracing themselves for another sweeping overhaul of the CIS tax system after the government pledged to stamp out bogus self employment.

Very little detail has emerged about Chancellor Alistair Darling's plan to attack "false self-employment" but some contractors fear it will pile-up extra costs in employers' national insurance payments.

In the Budget, Darling said: "The government will consult with a view to future legislation to ensure that construction workers and those they work for are taxed appropriately."

"The government will work with the industry to ensure that any legislation is effectively targeted and the industry retains a flexible labour supply."

This prompted speculation HM Revenue and Customs (HMRC) will push for a three-pronged attack to tackle outstanding problems with CIS. Howard Royse, construction industry head for the Chartered Institute of Accountants, said "There are clearly still problems with new CIS, but it isn't clear at the moment whether this is another revamp or the revenue looking at some of the umbrella payment schemes.

"When the new CIS was launched, HMRC talked about doubling numbers of inspectors to police the scheme, but that didn't materialise and the amount of money collected in has been down on original forecasts."

Contractors believe HMRC will seek stronger powers to collect fines, close the loophole allowing umbrella firms to pay tax-exempt expenses, and slash the number of workers classified as self-employed.

HMRC has fined contractors £180m so far, but just £10m of that sum has been recouped. One small contractor, who refused to be named, said: "My guess is that this review is more about collecting tax then tackling bogus self-employment. If they were to cut self-employment by half, it would bring hundreds of millions of pounds more into their coffers."

In the Pre-Budget report the Chancellor warned that the Revenue planned to scrutinise umbrella companies and workers dividend and expense payments.

The announcement of the consultation follows a campaign by construction union UCATT to end "bogus" self-employment, which it sees as a restriction of workers' rights and as a tax loss to the government.

Alan Ritchie, UCATT general secretary, said: "The government recognises that there is a problem with CIS. We will play a full role in the consultation which we hope will lead to a wholesale stamping out of bogus self-employment."