How can you prepare your business for IR35?
Whether you fall in or out of IR35 – or you have contracts that are a mixture of both – organisation of your documents throughout the year is crucial if you want to avoid a scramble at the end of the fiscal year.
Keeping as much information as possible – and keeping it in good order – will help in any assessment by the Inland Revenue or independent financial advise you seek. It will also help you to keep track of your contracts and continually assess if you are in fact falling outside IR35.
If any of your contracts are within IR35:You will need to collect together and keep certain documentation for each one of those contracts. This could mean a few hours extra – and probably tedious – work a month but it will save you problems in the long run.
- Details of the engagement: keep a written record of full names and addresses of the client, intermediary agencies involved, how the contract was won and its start and finish dates
- The contract: copies of the contract, signed by both parties
- Sales invoices: provide copies of all sales invoices for the contract and the exact date the income came in. This is important because it is the tax year within which the income is received that the tax is assessed on, not when the contract is completed
- Record of expenses: keep details of mileage, travel and accommodation costs etc if you intend to claim them as tax deductible
- Expenses reimbursed by the client: details of any payments made by your client to a third party on behalf of you or your company
- Declare benefits in kind: anything that doesn’t show up on the invoices such as a daily living allowance or entertainment needs to be declared because as far as the Inland revenue is concerned this is taxable income
If your contracts are outside IR35:You still need to have certain information readily to hand should the Inland Revenue decide to inspect – which it is entitled to do at random. This is a rough idea of the documents and information you should keep for at least three years for every contract:
- Details of the engagement – how you found it and when it started and finished
- Contact details for the client and the worker
- Copies of any payments made by the intermediary
- Copy of the contract plus any additional contractual terms not included
- Working hours spent on the engagement
- Details of sales invoices, when issued to the client and when paid
- Expenditure of worker and whether any amounts reimbursed by client
- Assets, accommodation etc supplied by the client for the worker