UK Tax - direct third party payments

adw999

Hi

I create websites with a friend and for ease for the client, we send an invoice together so they only have to pay once.

I usually get paid the money and I then transfer my friends share to his account.

When filing my money earned, obviously I only earned X amount, not the total that came into my account. Should I be reporting the total account and then showing the money going out to my friends account?

The thing I'm worried about is paying tax on income that I don't actually earn or have any benefit from.

Thanks

agrinnall

I'm sure the accountants and tax specialists on here will be able to advise you how to deal with this so you con't get hit with all the tax, but as a layman I would have thought that setting up a completely separate joint account with your friend would have been a sensible idea. It should really be a business account but you'd probably get away with a personal account if the income is currently relatively small.

antrobus

adw999 wrote: »

Hi
....
Should I be reporting the total account and then showing the money going out to my friends account?
...

I would say, yes. Bearing in mind that the only 'reporting' required is plugging some numbers onto a SA tax return.

Technically speaking it could be argued that you and your friend were in partnership, and that you should be filing a partnership return. But on the basis that you are not trading as 'Smith and Jones' and that we're not talking about life-changing sums of money here, I wouldn't worry about that.

adw999

Thanks both.

If I put in the total amount and then minus the half that my friend takes, will I eventually end up paying more tax on this over than if he invoiced separately? I'm tempted to make him invoice his part separately although we're only ever talking small amounts of money - at most £1k for his share.

Elaine_Wilson

You will only pay tax on your share of the earnings but the accounting treatment may differ according to the actual circumstances.

Am I correct in saying that you invoice the client for the whole amount? If so, then this is your turnover and should be entered as such in your tax return. You can then claim your friend's share as a subcontractor cost to leave you paying tax on your share only.

If you are doing it this way bear in mind that the client has a contract with you only which may have other consequences. For example, the product liability is all yours and your turnover is higher which may be relevant for VAT registration in the future.

adw999

Elaine_Wilson wrote: »

...
Am I correct in saying that you invoice the client for the whole amount? If so, then this is your turnover and should be entered as such in your tax return. You can then claim your friend's share as a subcontractor cost to leave you paying tax on your share only.
...

That's what i did for last years tax return so that's good to know

I don't earn enough for VAT registration yet but thanks for pointing that out. Hopefully one day I will have to cross that path and split the services.

Thanks everyone

tyllwyd

I'm probably scaremongering, but is your friend properly self-employed? You don't want to end up in a situation where you end up being regarded as their employer, and having all those responsibilities.

I'd be more inclined to visit a solicitor and set up a partnership, then you both know where you stand. Or you could set up a limited company, with you both as directors - a solicitor could explain any pros and cons.