Contractors Underestimate Their Paperwork Responsibilities At Their Peril
These days more than ever before, it’s essential for contractors to understand their tax liabilities and retain exacting records for ongoing reconciliation purposes.
It’s very important for any would-be contractor to realise that they’re in business now and are responsible for their own affairs, much more so than they may have been before as a “straightforward” employee. All of a sudden a lot more of that paperwork is going to pop up and the average new contractor is often ill-prepared for this new responsibility. A lack of preparation can be very costly, not only in terms of spare time wasted, but also in potential fines and penalties.
Payrize feels that it’s very important to remind the new contractor about this change in responsibility. While an independent contractor will often work with an umbrella company to handle a lot of details, the fact remains that the ultimate responsibility lies with the contractor. This means that it’s very important to set up a system to process all those records and paperwork, even if working with an accountant.
The contractor is now selling a service to a client. The payment that they get for this service is essentially sales revenue and a comprehensive list of this revenue needs to be maintained, in order to calculate income tax and VAT. Each and every “sale” in this respect must be accompanied by an invoice. Most agencies or clients will not pay without an invoice anyway and these documents will need to be reconciled periodically.
As a contractor it is possible to claim a number of expenses against business revenues. This varies according to the type of business of course, but it needs to be handled correctly from the beginning. When the contractor is sure that a certain category of expenditure may be offset against their tax, then they need to ensure that they keep a paper trail for reconciliation and proof purposes.
It may be necessary to endure some capital expenditure when setting up in business as a contractor. This type of expenditure may be allowable against taxation but once again it needs to be handled in a certain way and reconciled accordingly.
Payrize feels it’s important to draw attention to a new contractor’s paperwork responsibilities, as so many people do get into trouble without realising what they’re doing at the outset.
Payrize is a tax solution comparison tool for contractors and freelancers. The aim of the company is to provide extensive resources enabling the client to locate the best tax solution, as well as to source the best opportunities and contracting jobs at a variety of companies around the world.
- Contact Information
- Dale Friday
- Press Officer
- VMF Ltd
- Contact via E-mail
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