One of the UK's accounting bodies is supporting the government's proposal to halve the amount of turnover small to medium enterprises (SMEs) need to qualify for gross payment status under the Construction Industry Scheme (CIS) for taxation.

The Institute of Financial Accountants (IFA), whose members work for SMEs or who run or work in companies that advise SMEs, was responding to a consultation on improving the CIS launched by HM Revenue & Customs in June this year.

Gross payment status – whereby a contractor pays a business in full, without deductions for tax or National Insurance so the business has to take care of its own tax and National Insurance affairs – is dependent on three tests.

• A company has to show it carries out construction work and is run through a bank account
• Has a turnover currently set at no less than £200,000
• Has made its tax returns in good time.

The IFA says the proposal to reduce the turnover limit to £100,000 would help, in particular, companies which have to buy a lot of material before they get paid for it and the work involved in installing it.

However, IFA recognises that a lower qualifying threshold would put pressure on smaller businesses to make sure they have sufficient funds to meet their tax obligations at the end of the year.

IFA chief executive David Woodgate said: "The additional flexibility provided in the reduction of threshold level and the proposed relaxation of the compliance test are welcomed. Although there may be challenges for certain contractors to meet their compliance obligations, the move to bring CIS online appears sensible and long overdue."