Being an independent bookkeeper has many benefits, including the flexibility of working hours and the ability to choose which companies you work for, as well as being a very affordable way to set up a business and work for yourself ...
Alongside anti-money laundering, data protection and anti-bribery policies, every independent bookkeeper should have a standard set of terms that they use for each client they have. If they are written correctly, they are written with your business processes in mind. The way your business operates from start to finish must be considered.
You need to consider what your pricing processes are going to be. You have flexibility here and may wish to offer different packages depending on each client's needs. You may wish to offer your clients a retained service where they are committed to paying you for a number of hours or days per month over a 12 month period, or something with less commitment like fixed priced hours, which tends to work well for clients who only need you on an ad-hoc basis.
For any option you choose, it is imperative that you have terms and conditions to protect both parties. When you enter into any contract, you must consider what you would want to happen if the relationship breaks down, or if your clients' needs change.
It reduces the likelihood of long-winded, drawn-out arguments about what was agreed during the negotiation and the quotation process. You must also state what your client's obligations are, remember they can be in breach too. If you do not specify this in your terms and conditions you put yourself at risk of uncertainty, misunderstandings and the inability to be able to complete your obligations under the contract.
When no terms have been applied to the contract, or ineffective terms have been used many problems can arise. Below I consider what is the absolute minimum terms that must be included:
- Parties: Seems obvious, but be 100% clear on who you are contracting with and whether that individual has the capacity to enter into contracts on behalf of the company. Always ensure you have full details of the company too, chasing payment without an address would be very difficult.
- Term: How long is this contract for? Is it rolling? What happens at the end of the minimum term? It is in your best interests to make this very very clear so you can plan for business growth with client retention.
- Payment:
- Be clear on the price, be clear on what is included in that price. - Be clear on how payment is due, payable on an invoice? Or by standing order? - Late payment is, unfortunately, a fact of life for small businesses, as there is often no urgency from your customers to pay you. With the right terms in place, you can ensure that you get paid first with no excuses for slow payment. Furthermore, there is no question over the work that has been completed and whether the money is due at all as the terms consolidate everything that has been agreed.
- Limitation of Liability: All contracts, in particular, business to business contracts, carry a risk of liability. Legal liability can arise from a breach of contract, negligence, misrepresentation and infringement of IP rights. A limitation of liability clause is essential as it serves to limit the amount and types of compensation one party can recover from the other party should any of these things occur. If you do not cap the amount of monetary liability you have to clients, you will be liable for an unlimited amount which could wipe out your whole business. You also want to think about what you are warranting when delivering your service. You'd be surprised at what the other party may try when disputing an invoice.
- Amendments and variations: The amount of money that is lost in businesses because this is not considered or made clear is insane. What is being asked of you can often change as the relationship progresses and can be very different from what was originally quoted. It is down to you to put those boundaries in place, if you originally quoted 10 hours, but then the job has become more like 12 hours, charge for that. Rely on your terms and ensure you are being paid for ALL the work you have done and not just what you have quoted for.
- Alternative Dispute Resolution: Where disputes do arise, which inevitably they will it is important to be clear in your terms what the processes are. Disputes can be dealt with much quicker, and cheaper than going through to court. Furthermore, many clients will come to us once something bad has happened. Anything from £100 - £1000s worth of revenue lost and with little or no backing in regard to terms and conditions, it makes it more difficult to recover those costs. A lawyer can present your case much simpler if the contract is clear which means less money spent on dispute resolution.
You also need to consider IR35 which is a complex piece of tax legislation that even HMRC seem to not understand most of the time. It was first introduced in April 2000 with the aim to address tax avoidance by individuals working in the role of an employee through an intermediary, such as a limited company. It is aimed at people like you, especially if you were once employed by your client.
It is important to establish whether the contracts you are working on fall inside or outside of IR35. As a contractor, HMRC can investigate your arrangements at any time, and this can be time-consuming, costly and highly stressful. The financial impact of IR35 could be significant.
If IR35 rules do apply to the contract, the fine would be the same as the Income Tax and National Insurance contributions the contractor would have paid if employed directly, rather than contracted to work through your limited company. HMRC can go back up to six years and evaluate past contracts to see if the legislation should have been applied previously too.
HMRC have the legal right to conduct a status review of your business at any time! If and when this happens, you will have to prove that you are genuinely self-employed and that you conduct your business on your own accord. You must also show evidence that you are not just an 'employee in disguise'.
One way to do this is to make certain that your contracts with your clients adhere to the standards of IR35. An HMRC inspector will conduct a thorough review of your contract arrangements to ensure that you are indeed self-employed.
Accordingly, as a new bookkeeper, you must make sure that the way you work in practice reflects what is written in your contracts.
If anything I've written here resonates with you, call me on 01604 420057 and let's see how we can help you.