CONSTRUCTION firms could face massive cashflow problems if they fail to prepare for taxation changes.

The Construction Industry Scheme (CIS) changes, which come into force in April, 2006, set out special rules for contractors and subcontractors.

Under new regulations, there will be differences to the way that building firms are required to deal with income tax and national insurance matters.

Firms in the town could already face tax bills and penalties costing thousands of pounds after the Inland Revenue announced that some workers classed as self-employed were really employees. Last August, the revenue sent letters to 755 construction firms in the town, which employ around 14,000 people, suggesting they examine their records and review their practices immediately.

Paul Draper, tax partner at Unity, chartered accountants and business advisors based on Clive Street, Bolton, said: "The majority of construction businesses will be aware of the changes, but many do not realise that there is less than 12 months to prepare.

"It is essential that business owners start to consider the impact of the new rules now.

"The Inland Revenue will be checking that contracts with sub-contractors are genuine of self employment, as part of the new proposed verification process."

He added: "New scheme obligations, including the ones that relate to the submission of returns and the timely payment of taxes, will be faced by all businesses regardless of their size."

Penalties could be as high as 100 per cent of the tax and National Insurance contributions due, on the basis that businesses had been warned but failed to act.

The tax office recommend that businesses refer to the leaflet IR56 Employed or self-employed? A guide to employment status for tax and National Insurance contributions.