Contractors who reduce their tax liabilities by billing their clients via their own limited company will know that they should do everything they can to avoid falling into IR35 rules.
One mechanism for doing this is to keep detailed timesheets which will allow you to demonstrate to a HMRC investigator that you are in fact self-employed and not a ‘disguised employee’. But how? Here’s our handy guide.
IR35 – a quick reminder
IR35 refers to the legislation HMRC uses to decide a contractor’s employment status. The government believes being self-employed means that the individual is able to control when, how and where they work, rather than an employee who has fixed hours or can’t go on holiday without permission.
Using your contracting timesheet to demonstrate you are self-employed
Your timesheets can demonstrate the occasions which highlight your self-employed status.
The first key area is recording the times when you are working on your own account. Tendering for a contract, delivering unpaid work in pursuit of a contract, writing a blog or updating your website, and any other activities which are non-billable may seem unproductive. Yet they are proof that you are taking a financial risk, rather than your clients.
The second area of activity to record is the occasions when you are treated or act differently from permanent employees. If you are not expected to work because of an audit, for example, or refuse to do work that is not part of your contract, that is evidence that there is no ‘mutuality of obligation’. The other element here is control – if you can do work without first needing it to be signed off, that shows that you control how you work.
If HMRC does come calling, the ability to go back for several years to be able to provide evidence that you were self-employed will be worth its weight in gold. Even though timesheets may seem painful at the time, they are a vital defense against an unfair IR35 review.
We’ve drawn up a handy timesheet template – download it for free from our resources page.