The Construction Confederation, which represents 5,000 building contractors, has walked out of talks with HM Revenue and Customs over its plans to implement an online tax collection system for subcontractors in April.
A spokesman for the Confederation said: "The IT system is not ready and there is no software for the contractors to use. We have put out a challenge to the IT industry for anyone to produce any. If this goes ahead there will be chaos."
It is warning that if the system goes live in April, contractors not using the system will face higher initial deductions of 30 per cent and will be in danger of going bust due to cash flow problems.
The Confederation is supported by the Business Application Software Developers Association which claims that there is not enough time to train firms on new applications.
The aim of the system is primarily to replace plastic cards and paper forms with an online system that will decide which subcontractors are paid gross for work and which have an initial sum deducted for tax and National Insurance.
"It will make it easier for employers to know who is working for them as bone fide self-employed, but it won't work unless the system has had been properly tested and training has taken place," the Confederation spokesman said.
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