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PayProp secondary payments & contractor recharges, explained

What they are, how to record them so your VAT is right, and how to reconcile them to your accounts — written for letting agents who'd rather not learn this the hard way.

What a secondary payment actually is

When a landlord's gas boiler packs in, you pay the engineer and bill the landlord. Often you add a bit on top — for arranging it, carrying the cost, and standing behind the work. That "bit on top" is your margin, and a secondary payment is how PayProp models the whole thing as one instruction instead of two.

Under the bonnet it's two linked rows:

• The parent — your margin. Flagged is_parent, paid to the agency.
• The child — the contractor's cost. Flagged is_child, paid to the contractor.

Both rows carry the same parent_payment_id, which is the thread that ties them together. One job can have several children (different contractors on the same property), but there's always one parent holding the margin.

The recharge, in money

Say a VAT-registered gas engineer invoices £96 (£80 + £16 VAT). You recharge the landlord £120. Here's the same job recorded two ways.

The net way (tempting, wrong)

You book one income line of £24 — the margin — and move on. It balances, your bank's happy, and your VAT return is quietly incorrect. You've collected £20 of output VAT from the landlord and paid £16 of input VAT to the engineer, and none of it is on the books. HMRC takes a dim view of "quietly".

The gross way (more lines, correct)

Same £24 in your pocket, but now the £20 output VAT and the £16 reclaimable input VAT are both on the return, and you remit the £4 difference. That's the whole point of recording it gross: the bottom line is identical, the VAT detail isn't.

How it shows on the all-payments report

On PayProp's all-payments report, the parent and child appear as separate rows linked by parent_payment_id. The parent carries the agency margin; the child carries the contractor's name and the cost. That report is the source of truth for the link — match on the payment id, not on amounts or dates, because amounts repeat and dates can drift.

Getting the VAT right

This is the part that catches people out, so plainly:

• The income leg (to the landlord) carries your output VAT — in Xero terms, OUTPUT2.
• The cost leg (the contractor) carries reclaimable input VAT — INPUT2. It posts to an expense account, so it's input, not output. Put output VAT on an expense line and Xero will reject it.
• The rate follows the contractor's real status — from a VAT invoice you've actually extracted, or a status you've set by hand. If they're VAT-registered, both legs carry 20%. If they're not registered, both legs are No VAT — including the income.

The trap is PayProp's has_tax flag. It's a box, not evidence. A contractor who isn't registered can still have it ticked, and a registered one can have it blank. Treat it as a signal, not the answer — the invoice (or a status you trust) wins every time. If you genuinely don't know a contractor's status, the safe move is to hold the recharge rather than guess, because guessing wrong puts a bad figure on a VAT return.

Reconciling it to Xero, QuickBooks or Sage

Once the settlement posts, the recharge becomes two documents in your accounts:

1. The income sits on the day's settlement invoice (gross, with output VAT).
2. The contractor cost is a credit note per contractor, allocated against that invoice. The credit note nets the recharge income back down to your margin, while keeping the VAT on both legs visible.

A couple of mechanical details that matter in Xero specifically: the allocation endpoint is a PUT, and the credit-note line posts to the cost account with INPUT2. Get either wrong and the credit note won't allocate, leaving your invoice overstated by the gross recharge.

Which day does it belong to?

Anchor the recharge to the day the agency's margin settled — the parent payment's transfer date — and pull the contractor legs in by parent_payment_id, whatever date they carry. Most of the time both settle together, but if they ever split across days, the agency date is the one that decides which statement the recharge lands on. Group on the supplier's date instead and a perfectly good recharge ends up on the wrong day, or stranded.

Common questions