1st Quarter 2000 - Current Issues The start of a new year has seen no change in the issues that are of most concern to FMB members, headed by the Construction Industry Scheme for the taxation of sub-contractors in the industry. Indeed, the level of concern over the effects of the CIS has, if anything, increased since it came fully into operation. Of the more than 140 respondents who accepted the invitation to write in comments on the state of trade or on current issues - two-fifths of the total response - 40 focussed on this topic. As previously identified, there are three main dimensions to it, the largest of which is the reduced availability of tradespeople to work as sub-contractors, as many who have formerly played that part have opted to set out on their own, working direct to the public, often in competition with the firms for which they previously worked. There are now reports of firms turning down work because they cannot any longer secure the services of people who worked for them before, either as sub-contractors or as direct employees. Some say that they are having to put expansion plans on hold. For the first time, some others say that they fear being driven out of business. The second dimension is the effect on rates of pay to sub-contractors, who are looking for increases to compensate them for the at-source deductions now in force. Most responses were received before the Government announced the lowering of the rate of deduction. The next survey, results of which will be published in July, will test whether this has any beneficial effect. The third dimension is the increase in paperwork demanded of the small building firm, which is also being affected by changes in fiscal and social legislation that apply across the board and not just to construction, such as the introduction of tax credits. There is increasing resentment that, despite the assurances of successive governments that they are committed to reducing 'red tape' for small and medium-sized enterprises, the amount has increased and is still increasing quite substantially. Overlapping the issue of the CIS is that of the rate of Value Added Tax on home improvements. The more that tradespeople choose to set up on their own, rather than register as sub-contractors, the more there are working for cash in hand, and not charging VAT on the price of their services. Many survey respondents who have commented on this tendency describe it as an extension of the Black Economy. This is not necessarily the case, if the tradespeople working direct to the public shall in due course pay Income Tax and National Insurance Contributions as self-employed persons. As far as firms that are registered for VAT are concerned, however, the distinction is immaterial, for they are just as much at a disadvantage competing with all individual tradespeople or very small firms that work for cash in hand, not charging VAT on their services. There is therefore another increase this time in the number of written-in pleas for a change in present VAT arrangements, either a change in registration rules or, gathering more support all the time, a lowering of the rate of the tax on home improvement work, which is the sector of the market in which the problem of competition with firms not charging VAT is most acute. As in 1999, there are also firms that show they are taking a longer view of the condition of the industry, and are concerned about the level and the quality of training in construction skills. FMB members' written-in comments again show that there are many small and medium-sized firms in the industry that would like to be doing more to help train the future workforce, but are deterred by financial considerations, or the lack of suitable potential trainees. Further Information For further information, please contact: Federation of Master Builders Gordon Fisher House 14-15 Great James Street Holborn London WC1N 3DP Tel: 020 7242 7583 Fax: 020 7404 0296 First posted: 25 May 2000. Last modified: 25 May 2000.