Construction firms 'losing out' over tax status

Thousands of construction firms are losing out by having a tax status revoked, tax experts have warned.

Of the 107,000 contractors to be given gross payment status under the Construction Industry Scheme (CIS) in April 2007, 12,000 firms have now had their status revoked.

The HM Revenue and Customs (HMRC) can withdraw gross payment status, which allows contractors to be paid without deduction, on the basis of repeated late tax returns.

Tax experts are appealing for the HMRC and Treasury to review their hard line on the issue.

Howard Royse, CIS tax representative for the Institute of Chartered Accountants, said that as well as cashflow problems, a loss of gross tax status can cause contractors to lose out on local authority work.

"They often won't consider a contractor that has been ruled against like this by HMRC for making late returns," he said.

A spokesman from the HMRC said that they "currently have no evidence that loss of gross payment status is causing businesses to close".

The CIS scheme applies to contractors and subcontractors in mainstream construction work, as well as businesses that have a high annual construction spend.