6 April 2026
Table of contents
Table of contents
Deciding to become a self-employed contractor is a huge step in your career, especially if you’re moving away from the relative comfort of employment.
Like any business owner, you’ll need to keep records about things like contracts and payments, but some of the tax rules can be particularly complicated for contractors. With that in mind, we’ll use this article to explain what records you need to keep as a contractor, and how to stay on top of your bookkeeping.
Bookkeeping is a bit like having a diary of the finances in your business. You’ll record every transaction which happens, as well as other events like the way an asset becomes less valuable over time.
Good bookkeeping is at the heart of every successful business and a requirement for any business owner. It’s particularly important for contractors because of how you operate.
You’ll often be managing multiple clients and invoices at once, and dealing with irregular income, but there are also specific areas of tax law which impact contractors the most – such as IR35 and CIS (we’ll come back to those, don’t worry).
Keeping good records will help you comply with your responsibilities, and manage your cash flow so that irregular income doesn’t feel like quite such a squeeze.
Using a robust system to record all your financial data in one place makes it much easier to keep track of everything. For instance, you’ll know which customer invoices haven’t been paid yet, or which suppliers you still need to send a payment to. That way you’re less likely to miss a payment and risk tarnishing the relationships you’ve worked so hard to build.
As well as the more usual record-keeping and reporting requirements which every business needs to deal with, there are two niche areas of tax which have a particular impact on contractors and the records they need to keep:
IR35 is an area of tax legislation which looks at the way contractors carry out their business. It exists in order to clamp down on ‘disguised employment’, where someone who would ordinarily be an employee takes advantage of the tax benefits of working through their own limited company instead.
If a contract is found to be “inside IR35” it means the contractor is working for a client through their own limited company, but if the company didn’t exist they would otherwise be acting just like any other employee working for an employer. There are serious tax implications for this!
It’s therefore essential that you understand the rules and keep good records showing your IR35 status!
If you’re a contractor working in the construction industry and you use subcontractors, you’ll also need to register for the Construction Industry Scheme (CIS) and submit CIS Returns.
You’ll only need to submit a CIS return for the months you use a subcontractor but will still need to let HMRC know why you’re not sending a return the rest of the time.
Great bookkeeping equals a happy contractor! Here are some tips to get you started.
This is a requirement for limited companies, but even if you’re a sole trader it’s great practice to keep your business’s finances separate to your personal ones.
You’ll know exactly what’s what, with less risk of getting things muddled up. They are not words HMRC likes to hear.
Lots of contractors miss out on claiming expenses because they either forget to keep a record of what they paid for, or they’re not too sure what they can claim.
It’s another reason why bookkeeping is so important! As a contractor, you’re likely to incur business expenses in order to run successfully. Keeping track of all these will help you claim tax relief on any allowable expenses so you don’t end up paying more tax than you need to.
These might include expenses like:
Automating your bookkeeping minimises the risk of errors and helps save heaps of time so you can crack on with your business.
For instance, setting up Bank Feeds means you can automatically enter banking transactions into your bookkeeping, without needing to spend ages typing everything out.
You can even create Bank Rules to automate the checking process, or use automated payment reminders to nudge clients to pay on time and avoid disrupting your cashflow.
A to-do list of invoices which need sending and receipts which need tracking is all well and good – but it also means you’ve got a lot of work waiting for you once you finally get chance to sit down.
It’s also not that well or that good if this to-do list exists only in your head.
Online software means you can update your bookkeeping wherever you have an internet connection which, these days, pretty much includes space. This ensures accurate, up-to-date records, and no second-guessing when it comes to submitting those tax returns!
Learn more about using Pandle to make business accounting easier. Create an account today and decide what to do with all the extra time you get back.
A creative content writer specialising across business, finance and software topics. I have a love for all things writing, and creating engaging, easy to understand content that helps everyday people!
Create your account today, and decide what to do with all the extra time you get back. We hear Pilates is popular.
Live chat support
No card details required
Making Tax Digital compliant
