How to calculate 50% after taxes

devonian20

Hello
i have a little business which is in a self employed capacity.

Recently with a friend I had a job for £1000 which we agreed we’d split profit in half for and she would
invoice me for 50%.

I’m not VAT registered.

I know I need to account for tax at 20% which means it is £800 between us but then we had to rent a car and pay fuel (total approx £120). 

How to I calculate after that expense is taken off tax? Or does it depend on my overall tax bill?!

Grumpy_chap

devonian20 said:

Hello
i have a little business which is in a self employed capacity.

Recently with a friend I had a job for £1000 which we agreed we’d split profit in half for and she would
invoice me for 50%.

I’m not VAT registered.

I know I need to account for tax at 20% which means it is £800 between us but then we had to rent a car and pay fuel (total approx £120). 

How to I calculate after that expense is taken off tax? Or does it depend on my overall tax bill?!

I don't think you do calculate after tax.  Not at this stage anyway.

You and your friend have done some work for which the only expense is your time and the hire car.  
Your sole-trader business generated an income of £1k.
There is a direct cost for the hire car and fuel £120.
That leaves £880.
Your friend invoices you (as a sole trader, responsible for their own tax and NI affairs) for half of the £880, so £440.
You are left with the remaining earnings of £440 which will be rolled into your annual earnings and subject to income tax and NI in the normal way.

If you worked this in the manner you describe, you would be doing the following:
£1k income
Less £200 (20% you are incorrectly holding back for income tax - income tax is calculated on profit not revenue)
Less £120 for the hire car
That would mean £680 split between two of you, so your friend invoices £340 (as sole trader responsible for own tax and NI).
But you would then have £1k less £120 less £340 equals £540 which becomes subject to your tax and NI at the appropriate marginal rates.
A split of £540 and £340 is not the split in half which you describe

devonian20

Ah that explains it well, thank you