Subcontracting a part of the work, saving a part of the tax?

KDuffy
KDuffy Posts: 12 Forumite
Name Dropper First Anniversary First Post
edited 8 April 2018 at 3:54PM in Cutting tax
Hi guys,

Just something I've been wondering.

I'm self employed. I normally put away 29% of each and every invoice for the taxman- in an ISA I have separate to my main bank account. However for the first time, I've needed to subcontract some work on a project.

I plan to pay the individual out of the invoice as it comes in next week. The question is- do I take my 29% out of the overall amount... or do I pay the individual, and take 29% out of the remaining amount?

As they'll be paying the tax on that part of the job, and I'll be having them as an expense? The maths has really confounded me this time.

Thanks for any response!

Comments

  • 00ec25
    00ec25 Posts: 9,123 Forumite
    Combo Breaker First Post
    well done you for the discipline of setting aside money each time

    sales price to customer £100 = income for your business
    invoice from your subcontractor £79 = expense for your business
    net profit in your accounts = £21
    tax set aside by you: £21 x 29% = £6.09
  • KDuffy
    KDuffy Posts: 12 Forumite
    Name Dropper First Anniversary First Post
    00ec25 wrote: »
    well done you for the discipline of setting aside money each time

    sales price to customer £100 = income for your business
    invoice from your subcontractor £79 = expense for your business
    net profit in your accounts = £21
    tax set aside by you: £21 x 29% = £6.09

    thank you! This is the exact answer I was looking for.

    Yes I'm surprised how rare it seems to find people that set money aside. Maybe it's just that I live an unexciting life haha. Thanks again.
  • polymaff
    polymaff Posts: 3,903 Forumite
    First Anniversary Name Dropper First Post
    KDuffy wrote: »
    thank you! This is the exact answer I was looking for.

    Yes I'm surprised how rare it seems to find people that set money aside. Maybe it's just that I live an unexciting life haha. Thanks again.

    As rare as planning ahead and common-sense always are. :)

    By the way, I hope that you won't save tax. Businesses (should) turn to subcontractors in order to make more profit - and hence pay more tax.
  • polymaff
    polymaff Posts: 3,903 Forumite
    First Anniversary Name Dropper First Post
    KDuffy wrote: »
    I plan to pay the individual out of the invoice as it comes in next week.

    Don't you dare! Your business plan may see a link between the two, but your book-keeping must record two completely separate transactions.
  • KDuffy
    KDuffy Posts: 12 Forumite
    Name Dropper First Anniversary First Post
    polymaff wrote: »
    Don't you dare! Your business plan may see a link between the two, but your book-keeping must record two completely separate transactions.

    Oh gosh yes, I'll obviously have those two as separate events. The invoice is in my invoices, paying the individual is under my expenses.
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