I’m probably being a bit thick here, but just want to check something. Suppose I did a job for a client where the labour element (i.e. my time) came to £100 and there was the need to invoice this client for the materials used to complete the work, coming to £80. Clearly the £80 element is classed as cost of sale (I will have paid the supplier for those materials and raised a PO coding it to general purchases, nominal 5000). Question: do a record the sale as £180 or £100 in my books?
You’re overthinking things - you invoice the customer for the amount you want them to pay you (£180) and you raise a purchase for the amount you paid your supplier for materials (£80). The two will then offset on the P&L to calculate your gross profit (£100).
If you choose to show labour and materials as separate lines on the customer invoice then you have the option to add extra nominal codes in the sales section for each category, which would show the labour and materials totals separately on your P&L, but that doesn’t affect the bottom line - £180 turnover, £80 CoS, £100 gross profit.
Thank you for that - clear now! On a related theme; one of my regular customers recently required some new fencing and, as I don’t get involved with that, I referred the work to a local, trusted contractor who did the job. Made-up figures, but if I invoice the customer for £1000 and pay the contractor £950, then there is a £50 gross profit/referral commission for me. I assume it is right that I show the sale in my books as £1000, even though I didn’t do anything?!!
You’re overthinking it again!
You don’t need to “show the sale in your books”. You have a sales invoice for £1000 and a purchase invoice for £950. That’s it. Done.
If you’re the one that your customer paid and you are engaging the subcontractor on the customer’s behalf then yes, the full £1000 is part of your turnover. If you wanted to keep it off your books (if you’re getting too close to the VAT registration threshold, for example) then you’d have to arrange things differently, with the fencing contractor invoicing the customer directly for £1000 and the customer paying them, then you invoicing the £50 referral fee to the contractor without involving the customer. That way only the £50 counts as turnover to you.
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