Sub-contractors fees

[downhill racer]

Hello

I work for a construction company and are considering using sub-contractors for the first time. If i can put forward a few figures here to get some feedback that would be very helpful. (for illustration purposes only, not actual rates) Below is generally how we price for work.

1. site staff cost us £15 per hour
2. we add overhead rate of £10 per hour and 20% profit of £5 per hour
3. total charge our rate is £30 per hour

We are considering using sub-contractors on a job we priced using the figures about but they are charging £20 per hour. Do we still have to add an overhead rate on top of that or do we assume that because they do not impact our overheads we don't. Therefore at £20 per hour for a sub-contractor and we have priced at £30 per hour, profit is £10 per hour, as opposed to the £5 in the illustration above.

Any help appreciated.

 

[STDFR33]

There should be variable and fixed overheads that make up the £10 you have arrived at.

Part of that may still be applicable to contractors such as management and admin.

 

[downhill racer]

Thanks STDFR33

I've spent a bit of time today thinking about it and get that now. Yes we will be spending a certain of time managing them. The next task now will be to decide what overhead rate to apply to them.

 

[Spur Support Services]

The will be some overheads of running the sub contractors.

They may not use Payroll for employment taxes, but instead there may be CIS deduction administration which involves both Purchase Ledger and HMRC RTI submissions (administrated via Payroll systems).

If you are a small company, then you should at least give some passing thought as to whether you are acting as an intermediary for Off Payroll IR35 services, in the supply of the subcontractor to companies further up the construction chain (if applicable).
If you are medium sized then IR35 controls need to be put in place.

 

[JoeCM2]

Also consider reverse charge VAT in your planning

 

[Financial-Modeller]

What is the impact on your prospective client of you sourcing labour internally vs externally?

The answer to that will determine whether and by how much you can vary your charge out rate.