Contractors' Questions: Is not using consecutive invoice numbers risky?

Contractor’s Question: I’m contracting for a firm a few days a month to get experience in a field I might launch a 'Plan B' in. Like the other temporary workers I’ve spoken to, I’ve been asked NOT to put or use consecutive invoice numbers.

As many of the workers have just this one client, perhaps the firm is worried that we may appear to be its employees? Whatever its motivation, I don’t want to be in trouble with the authorities for making my invoice numbers non-consecutive. Please advise.

Expert’s Answer: Well something certainly seems amiss with this client; we suspect that their request relates to what HMRC calls ‘disguised employment.’

HMRC identifies disguised employment as, ‘the avoidance of tax and National Insurance Contributions (NICs) through the use of intermediaries, such as Personal Service Companies or partnerships, in circumstances where an individual worker would otherwise –

  • For tax purposes, be regarded as an employee of the client; and
  • For NICs purposes, be regarded as employed in employed earner’s employment by the client.’

This is when a contractor, freelancer or other “temporary” employee fills a permanent role but invoices the company directly and thus both the client and supplier avoid paying the National Insurance and Income Tax an employee would pay. This legislation is often referred to as IR35 and its interpretation is something of a complex web of issues best handled by employment specialists. What concerns us, as credit managers, is your client’s request for non-sequential invoicing.

If IR35 is the concern then presumably your client believes that if your invoices are no longer sequential this will put them outside of the scope of the legislation. Unfortunately not only is this view too simplistic, but it will also impact on you and any other freelancer or contractor supplying services.

The good news from a credit control perspective is that if you are not VAT registered then invoice numbers do not necessarily need to be sequential, the government's own guidance on invoicing states that non-VAT invoices must have “a unique identification number”. This does not have to be sequential, so provided each invoice carries this “unique identifier” you can satisfy the client’s requirement and keep your own accounts tidy, although you may want to speak to your accountant prior to making the change as our accountant, who advises our business, points out that you “must be able to easily identify the source of all income”.

The difficulty will be if you or any other contract supplier is VAT registered, as it is a requirement of VAT registration that your invoices must be sequential. There is no getting around this and even spoilt or mistakenly raised invoices must be kept to keep the sequence intact. If you are concerned by your client's request we recommend you speak to the client and find out exactly what the reason is for their odd policy of not numbering invoices consecutively.

The expert was Adam Home, a manger at invoice recovery specialists Safe Collections.

Friday 2nd Nov 2018
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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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