I am operating as a sole trader at the moment in the UK while in between jobs. I am a software engineer.
I have received a contract to create some software for a client. A small part of the project is highly specialised and I want to subcontract that part of the work out.
I know someone based in Germany who can do the work.
If I subcontract the work out for £1k to my friend in Europe. He wants to be paid via Paypal.
I then invoice my client £5k for the whole project.
Do I simply report £1k as an expense when reporting my income to HMRC?