Bosses at WGL Stoneclean fear they will have to let staff go after losing their gross payment status under the scheme after missing a payment deadline by a few days.

Director Bernard Coleman blasted the system for being over bureaucratic and hampering smaller contractors.

WGL is in dispute over the amount of cash deducted by customers as “Advanced Income Tax” – some had taken 20% from the whole invoice rather than just the labour element.

Coleman said the £12,000 bill has hit cashflow hard on a business turning over just £500,000 a year.

But his real frustration is not being able to talk to HMRC officials about the disputed figures.

He told the Enquirer: “Some of our customers did not understand the excessively bureaucratic and complex CIS Scheme and instead of deducting 20% from an estimated direct labour charge had deducted 20% of the total invoice.

“We are fined 20% of our assessed direct labour content to be deducted from any invoice to a CIS registered contractor. At a time when banks are refusing to lend to small businesses this penalty is very severe.

“HMRC are all too ready to fine or withhold payments due to small businesses regardless of fault or consequences to the small business in question.

“All in all it is a quite efficient way of ensuring that small businesses are penalised while major multi-nationals escape tax bills with complex tax avoidance schemes.

“It is a major scandal that successive governments have burdened the construction industry with this pointless and complex scheme whilst they continue to assure us that Red Tape is to be reduced.

“Not only can HMRC not handle the task set them they show no inclination to improve their levels of service by making themselves available to direct telephone enquiries; preferring instead to hide behind call centre menus.”

HMRC does not comment on individual tax cases.