CONSTRUCTION firms in Bolton have been warned that burying their heads in the sand over reviewing the job status of their employees could leave them facing tax bills and penalties costing thousands of pounds.

The Inland Revenue believes that some workers classed as self-employed are really employees.

In August, the department sent letters to 755 Bolton construction bosses, as well as sub-contractors, urging them to examine their records and review their practices.

The Revenue said it would target these businesses, which in total employ around 14,000 people, with compliance reviews, warning that companies that did not act would face penalties as high as 100 per cent of the tax and National Insurance contributions due, on the basis that they had been warned but failed to act.

Inspections are now starting to take place and Ann Sharpe, the technical tax manager at Bentley's chartered accountants, in Chorley New Road, Bolton, said that time was of the essence if local firms had not yet acted.

"Contractors who do not put their house in order will discover they have made an expensive oversight. They've had the letters and they should not delay in checking their sub-contractors' terms of engagement and preparing for any areas likely to be questioned," she said.

As the law stands, if the terms of the employment show that the sub-contractor should be treated as an employee, the contractor should apply PAYE tax and Class 1 National Insurance contributions to the payments they make. There have been a number of industry schemes, the latest dating from 1999, that have tried to ensure that contractors treat sub contractors as employees and deduct the appropriate levels of PAYE and NIC.

In their letters to contractors the Revenue recommends that businesses use its leaflet IR56 "Employed or self-employed? A guide to employment status for tax and National Insurance contributions".