TAXATION experts have warned that tax changes could bring construction industry chaos.

In August, changes will be made to the Construction Industry Tax Deduction Scheme which has been in existence since 1971.

But a North West tax expert has warned that there are some unpleasant surprises in store for contractors and sub-contractors alike.

Mike Burrows of Arthur Anderson said: "The sole purpose of the new scheme is to prevent tax evasion in the building industry. The Inland Revenue believes that fraud is widespread and that many self-employed sub-contractors should in reality be on the payroll.

"From August 1 1999 sub-contractors must have a new style exemption certificate, entitling them to be paid gross, or a registration card under which deductions on account of tax and NIC will be made.

"Sub-contractors not able to produce either of these cannot be paid, and from August onwards thousands of sub-contractors will face major cash flow problems."

Contractors are being advised to gear up now for the scheme and the extra administration it will create as a new penalty system has been introduced for people who fail to operate the scheme properly.

Mike Burrows said: "All contractors and sub-contractors must be alive to the demands of the new construction industry scheme. The Revenue's core business is compliance and it will vigorously police the scheme to ensure that everyone is sticking to the new rules.

"Revenue enquiries can be costly and time consuming. The message is simple - contractors and sub-contractors need to comply with the new rules or sub-contractors will not be paid."

Converted for the new archive on 14 July 2000. Some images and formatting may have been lost in the conversion.