The Customs and Inland Revenue has bowed to increasing pressure from the construction industry and fellow Whitehall departments and agreed to delay the start of its CIS tax scheme by one year.

The Treasury has announced that the scheme will now not be fully implemented until April 2007, a year later than the planned start date, which was itself a year later than the original beginning.

The Revenue backed down after it became increasingly apparent that the software needed to run the scheme, which will be operated over the internet, would not be ready in time for the start date.

The climbdown co-incides with a decision by the DTI to intervene in the increasingly acrimonious row. Alun Michael this week personally contacted the Revenue to ask it to reconsider its plans.

The U-turn means that contractors will have the opportunity to train themselves on the scheme’s software before it is implemented. The Construction Confederation, which withdrew from talks in protest at the Revenue’s refusal to delay the scheme, will now rejoin talks to ensure a smooth launch.

Stephen Ratcliffe, the chief executive of the Construction Confederation, said: “We’re delighted with the announcement. We now feel vindicated at withdrawing from earlier talks.”

Earlier this week, Michael wrote to John Healey, the financial secretary to the Treasury, to demand assurances that the Revenue was taking into account the “legitimate” fears of the industry.

We’re delighted with the announcement. We now feel vindicated at withdrawing from earlier talks

Stephen Ratcliffe

He demanded that the Revenue take all necessary steps to avoid plunging the industry into chaos when the scheme is launched next April.

Michael’s intervention came after a series of representations to the DTI from industry groups, including the Construction Confederation.

A DTI spokesperson said: “We can confirm that Alun Michael wrote to John Healey to ask if we can receive assurances that the legitimate concerns of the industry are being taken into account.”

The DTI had been at arm’s length from the row until now. One source said: “The DTI knew that the minister would come under attack if it did not do what it could to address the situation.”