Paying a % of profits

[MrC]

I plan to pay a 50% of profits from one of my websites to a friend who is doing a lot of work on it.

I want to keep it simple so was thinking of, by way of an example :

Gross Revenue = £1000
Less Gross Expenses of £200 (leaving £800)
Less 20% to cover corporation tax, £160 (leaving £640)
50% of that is £320

So, for every £1000 of revenue I would pay, in response to invoice for their labour, £320.

We are not VAT regsitered at this point.

Does that make sense or have I over simplified it?

[peterjhale]

of course whatever you pay them will be deducted from your profits anyway


eg: revenue 1000
expenses 200
balance 800
50% fee 400
profit before tax 400
tax @20% 80
Net profit 320


oh, the same balance but your employee/ consultant gets £400

(someone should double check my calcs)

Be careful how you pay otherwise you may end up with tax/ NI implications.

This person should invoice you for their time then it is up to them to declare it

[MrC]

Ah yes, paying them before deducting Corp Tax, you spotted my deliberate error

Was planning to get them to invoice me for a block of hours, described as 'consultancy' or 'freelance writing', something that makes it obvious she is not under my payroll in any way. Then the number of hours invoiced will be her share of the money, divided by an hourly rate, so in our example, 400/10 ph = 40 hours, for the month of July. This will change every month, so should not look like set hours