"It’s important to keep an eye on your turnover so you can register for VAT in plenty of time if you get close to the threshold. You can incur penalties if you fail to register when you should, so keeping accurate records is a priority. Once registered, you must report to HMRC the amount of VAT you’ve been charged and the amount you’ve paid.
"This is done through your VAT return which is usually due every three months. To operate within the system, you charge VAT on all goods or services and can then reclaim any VAT you’ve paid on business-related goods or services. For most businesses, this works well and has its benefits, but beauty is a very different business model."
"Salons don’t tend to buy a lot of goods; their main costs being wages and labour, unlike retail businesses, which buy and sell stock or materials and offset the VAT they pay by being able to reclaim VAT on goods they have bought. This means the VAT salons pay pretty much comes straight off their profit margins," explains Pritchard.
Whether you’re a limited company or a self-employed therapist, you need to ensure that any money you spend on your business – from tools and products, to training and maintaining your skills – can be written off against tax. There are many different types of expenses you’re likely to incur, so it’s always worth checking with your accountant what you can write off against your income when it comes to completing your tax return.
Claiming for everything you’re entitled to could save you thousands of pounds every year, so it’s imperative to keep accurate records of any business outgoings so that nothing gets missed out.
Joanne Thorne, technical compliance manager at SJD Accountancy, says, "As a rule, you can only claim for expenses that are incurred wholly and exclusively for business trading purposes. This applies whether you go for a sole trader or a limited company setup.
"Claiming all the expenses that you are eligible for as a Sole Trader, or a Limited Company owner will reduce your tax liability and so help to keep your business in the best possible position.
"To avoid any queries or potential fines from HMRC, it is so important to claim for the right expenses and keep all your receipts for at least six years."
The good news is that this no longer has to be as tedious as it was in the past, as there are now easy ways to capture your expenses in real-time using just your smartphone, which can take the headache out of accounts.
"Because wages, labour, energy bills, rent and equipment are all relatively fixed costs, when a tax like VAT goes up it is much more difficult for salons to make savings elsewhere or to pass this increase on to the customer. You don’t want to suddenly raise your prices by 20% without giving your clients a valid reason," says Pritchard.
"So, you could raise prices incrementally before exceeding the threshold so that it’s not such a shock when you do have to register for VAT. There are also schemes available such as the Flat Rate scheme, which may allow you to pay a flat rate of tax (currently 13% for salons) on your gross turnover rather than a fluctuating rate based on VAT.
"Ensure you’re operating with the most tax-efficient business structure for your circumstances and stay up to date with changes in legislation, as the most effective solution a few years ago may no longer be the best."
Article written by Paul Pritchard and originally featured here
Beauty Love Stories are coming... but we need your helpREAD MORE...
Today, BABTAC along with the support of Beauty Backed Trust and the British Beauty Council launched T.I.M.E - an initiative to help consumers signpost their way to salon safetyREAD MORE...
This week we chat to Alex Forbes, Managing Director of Caroline Hirons Ltd and Skin Rocks Ltd and get her to answer our favourite 10 questionsREAD MORE...