How to handle pass-through payments to subcontractors in QuickBooks Self-Employed?

sacchilandia · ‎July 08, 2025

Hello,
I'm a freelancer who secured a project that will be completed by a colleague. As I was the initial contact, the client paid me directly, and I took a commission before passing the remaining amount to my colleague.
For example:

- Client payment: £1,500
- My commission: £300
- Payment to colleague: £1,200

How should I categorise this in QuickBooks Self-Employed to ensure only my commission (£300) is taxable, and the amount I pass to my colleague (£1,200) is excluded from my tax calculations?
I've considered marking the colleague's portion as "Personal" to exclude it from business income, but I'm unsure if this is the correct approach or if there's a more appropriate category.
Any guidance would be much appreciated.
Thanks

Andrea

Anonymous · ‎July 08, 2025

You can consider marking the pass-through payment as Personal to exclude it from tax calculations, Sacchi.

To do that, we can split the transaction into two and categorise your $300 commission as Business under an Income account, while the $1,200 amount will be under Personal.

Here’s how:

Go to the Transactions menu.
Locate the transaction you want to split.
Select Split from the Type column.
In the split transaction window, choose Business for the commission and Personal for the pass-through amount in the Type dropdown section.
For the commission, select an Income account. If you’re unsure which accounts to use, I recommend consulting your accountant for guidance.
Click Save to finish.

You can also check on how to split a single transaction into multiple accounts to categorise them properly.

If you need further assistance with managing QuickBooks transactions, please let us know by adding your comments.

sacchilandia · ‎July 08, 2025

Thank you for the explanation of the split transaction, which I understand. However, my question wasn't fully addressed.
My specific concern is about the categorisation of the pass-through amount (£1,200). When I record this as a business expense, won't it create a tax deduction that I shouldn't be entitled to, since this money isn't truly my business expense but rather a payment that passes through me to my colleague?
I'm essentially acting as an intermediary - the client pays me, I take my commission, and I pass the remainder to my colleague who performs the work. I want to ensure that:
1. Only my commission (£300) is taxable income
2. The pass-through amount (£1,200) doesn't create an inappropriate tax deduction
3. I maintain proper records for HMRC compliance.
I handle my own taxes as they're straightforward, so I don't have an accountant to consult. Could you clarify which specific expense category would be appropriate for this pass-through payment, or confirm whether marking it as "Personal" would be more accurate to avoid any tax implications?
Additionally, are there any other considerations I should be aware of regarding this type of arrangement for Self Assessment purposes?
Thanks for your continued assistance.

Kurt_M · ‎July 09, 2025

Depending on the nature of the business, you'll want to select the closest expense category for the pass-through payment available in QuickBooks Self-Employed (QBSE) using the SA103F.

In QBSE, there are allowable and disallowable expenses that you can claim on your income tax. It's crucial as it determines how they will appear on the Self-Assessment tax return. You can visit this article to get insights on the available expense categories that you can use to handle the pass-through payment: Allowable and disallowable expenses explained.

Also, please feel free to explore the bank rules to make it easier to handle bank transactions you have in your account. Refer to this article for more details: Create bank rules to categorise banking transactions in QuickBooks Self-Employed.

For other ways on how to handle this situation, we still recommend working with an accountant. If you don't have an accountant, I can help you find one. Feel free to visit this page: Find a QuickBooks ProAdvisor.

You can always visit the Community space if you have further questions about categorising bank transactions or handling QuickBooks-related inquiries. Rest assured, we'll be around and ready to provide a prompt response to answer your concerns.

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How to handle pass-through payments to subcontractors in QuickBooks Self-Employed?