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IR35: Paperwork that could save your skin

IR35: Paperwork that could save your skin

In the event of an IR35 investigation, HMRC will examine the evidence that the contractor is in business on their own account. This will broadly relate to how much supervision, direction and control (SDC) the contractor works under. Even if a contractor’s day-to-day working practices reflect their independent status, they’re often unable to offer any definitive evidence to prove this. However, with some minor alterations, limited company contractors can get into the practice of keeping paperwork evidence that could quickly bring an IR35 inquiry to a halt.

Your contract

Your contract is the number one piece of evidence in an investigation. Although tax investigators won’t automatically accept it as fact, it’s still the first thing they’ll look at.  Wherever possible, you should ensure that your daily working practices corroborate the information in your contract. Key points to include in your contract are the scope of the work, your contractor rates, and dates for the work to be started and completed. Keep in mind that the wording should always reflect that it is a contract for services and not ‘of service’ (employment). A substitution clause stating that if you’re unable to do the work, you have the right to appoint someone else to take your place, is also a good idea.

Your receipts

Receipts for your equipment, travel and running costs can provide important documentation that you’re in business on your own account. Contractors should generally use their own equipment and pay for any servicing. If you work from a home office, then keep records of your phone bills etc., even if you don’t intend to claim tax relief. Any receipts of training courses you attend and pay for are also extremely useful pieces of evidence, as are petrol receipts or tickets showing regular travel to a work site.

Your website

Having your own website is a good indication of being in business on your own account as a website is a marketing tool that an employee wouldn’t need. To strengthen your case, you should avoid using your own name as the business’s name and on general marketing material. By creating a brand that you can use on your website, business cards and public profiles, you’ll strengthen your case as an independent contractor.

Your correspondence

Your general correspondence can provide good documentation to support your independent status. Make sure you file any letters or emails relating to a substitute you engage, or letters informing your client of holidays you intend to take. Notification that you are terminating the contract early; correspondence that shows you have refused to do work that isn’t included in the contract, or where you’ve corrected existing work at no additional cost are all valid when demonstrating that you are not subject to SDC and that there’s no mutuality of obligation between you and the client.

Your timesheet

Many contractors already fill in timesheets for billing purposes, but your timesheet can also act as an important document that proves you’re independent status over many years. Rather than just detailing the time that you work on the contract, your timesheet should also record when you are working non-billable hours, such as tendering for work, correcting existing work for a client, writing a blog, or updating your website. You should also record any occasions when you’re treated differently from permanent employees; for example, if you’re sent home when there’s a problem or a company audit. This again demonstrates that mutuality of obligation doesn’t apply and that there’s a financial risk on your behalf. Timesheets can also reflect that you’re working on multiple contracts, which is a good indication that you’re not an employee.

For limited company contractors, taking precautions to protect yourself in the event of an IR35 investigation is just one of the ways you can prepare for the changes that are coming into effect in the public and private sector in April 2020. Another area where you can prepare in advance is by establishing a flexible payroll solution that will allow you to keep working the contracts that you want.

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