Sub-Contractors

This Direct Expenses code records costs directly tied to producing sales, relating to sub-contractors. As an expense account, it normally carries a debit balance: debit entries increase the balance and credit entries decrease it.

Real-world examples

Construction

A main contractor brings in a subcontracted electrician for £2,000 of labour plus £400 VAT (£2,400 gross). Payments to construction subcontractors usually fall under the Construction Industry Scheme (CIS), so a deduction — 20% for a subcontractor registered with HMRC, 30% if they're not — is withheld from the labour element before payment, not from the VAT. On a registered subcontractor that's £400 withheld, so £2,000 is actually paid rather than £2,400. The entry is a debit of £2,000 to 6002 (Sub-Contractors), a debit of £400 to 2201 (Purchase Tax Control Account), a credit of £400 to a CIS deductions liability account (CIS isn't part of Sage's default code range, so most construction firms add their own), and a credit of £2,000 to 2100 (Creditors Control Account) for the amount actually paid.

Creative or digital agency

An agency brings in a freelance developer to cover a busy sprint. There's no CIS scheme here — the only real question is whether the freelancer is VAT-registered. A £1,200 invoice from a VAT-registered freelancer is a debit of £1,000 to 6002, a debit of £200 to 2201, and a credit of £1,200 to 2100. Plenty of freelancers in this space sit below the VAT registration threshold, though, in which case the full £1,200 goes to 6002 with nothing posted to 2201 at all.

Events and hospitality

A hospitality business subcontracts event staff — waiting staff and a bar team — for a one-off large booking. Agencies supplying casual staff for a single event often want payment upfront or on very short terms rather than the 30-day account most suppliers get, so the corresponding credit to 2100 is frequently cleared within days rather than sitting on the books for a month. A £960 invoice (£800 net) is a debit of £800 to 6002, a debit of £160 to 2201, and a credit of £960 to 2100 — the entry looks identical to any other subcontractor cost, but the short payment window is worth planning cash flow around.

Commonly confused with

Because code 6001 (Cost of Sales Labour) sits right next to this one in Direct Expenses, it's a common mis-posting target. Code 6002 is specifically for sub-contractors, while 6001 covers cost of sales labour — similar in nature, but keeping them separate is what makes the direct expenses section of your management accounts meaningful rather than a single lumped total.

What a mis-posting here costs you

Posting to the wrong cost code here won't change total cost of sales, but it will distort gross margin analysis by category, making it harder to see which input costs are actually rising.

Other codes in Direct Expenses