The dreaded VAT threshold!

[Carlalouise]

In January, after trying so hard not to, we have ended up having to be VAT registered. I don't know about anyone else but for me as a small business it's going to cripple us as to keep in line with other salons (who are not registered) we just can't put our prices up, so this money will be coming out of our small amount of profit!! All our big outgoings such as rent and wages do not have VAT so we cannot claim back on these and now the flat rate scheme has gone up there doesn't seem to be any point in doing this.

My accountant has been of very little help, he just kept telling me to not go over, cut days and hours down, don't take anymore clients on, as he's seen small business's go under due to their success!! What is the point of having a business and not growing it??

Any advice from any of you lovely salon owners on how you got over this hurdle, would be much appreciated, for me at the moment the whole system seems so unfair as everyone knows your profit and turnover, which is what they go on is completely different.

I am determined to make a good profitable business which I and my staff are proud of but I also need a wage and don't want to be doing all of this to pay the tax man everything

 

[BannerPenguin]

I've always been honest with people. If you're turning over £85,000 then you should be making a reasonably good profit so it's not a huge issue. It's not fun but it's life sadly. If you're that busy, you have that many clients etc. Put prices up. Make yourself more profitable. No point of having a huge turnover and a tiny profit. Is there any way you can reduce your overheads?

You should get a better accountant. Happy to recommend mine if you want a free chat with him. He gives me so much free advice through the year.

You're spot on in terms of saying there is no point of limiting yourself to under the VAT threshold. Now you've met it, you need to smash it! Go so far over where you are making so much it doesn't matter. I believe one of the regular members on here (can't think of her username!) done exactly this and runs a very successful countryside salon.

 

[salonfrog]

Agree with BannerPenguin re smashing it.

As an alternative, have you thought about moving to chair rental rather than employing additional staff? This is an often used strategy to remain below the threshold.

Another (although small) point is to make sure your tips are not being recorded as chargeable to VAT. I say small but even at 10% they can add up.

 

[salonfrog]

By the way, the Office of Tax Simplification has been looking at VAT registration and especially the implications of raising or lowering the threshold.

Given that the UK threshold is already higher than in most other countries and HMRC know that 44% of registered businesses already operate below the threshold in the UK, it doesn't bode well!

So if this goes the wrong way, you'll be registering before you know it anyway?

 

[Carlalouise]

I've always been honest with people. If you're turning over £85,000 then you should be making a reasonably good profit so it's not a huge issue. It's not fun but it's life sadly. If you're that busy, you have that many clients etc. Put prices up. Make yourself more profitable. No point of having a huge turnover and a tiny profit. Is there any way you can reduce your overheads?

You should get a better accountant. Happy to recommend mine if you want a free chat with him. He gives me so much free advice through the year.

You're spot on in terms of saying there is no point of limiting yourself to under the VAT threshold. Now you've met it, you need to smash it! Go so far over where you are making so much it doesn't matter. I believe one of the regular members on here (can't think of her username!) done exactly this and runs a very successful countryside salon.

I think you may be talking about Squigernetball, she started around the same time as me and we have talked a few time's. I think she is smashing it which is great to see.

 

[BannerPenguin]

I think you may be talking about Squigernetball, she started around the same time as me and we have talked a few time's. I think she is smashing it which is great to see.

That's her I forget how to spell her username so don't want to embarrass myself lol.

 

[Bettyboobumpkin]

Hi,
I've been in and out of the same boat with my salons a few times and if you aim to hit about £125- 130 you should be ok. Just make sure it's not £86 as that's when your buggered. If you review it every quarter with your accountant ( or by yourself) then you can usually keep control. One of my salons took £84 last year and it made me sweat!

 

[Bettyboobumpkin]

Hi,
I've been in and out of the same boat with my salons a few times and if you aim to hit about £125- 130 you should be ok. Just make sure it's not £86 as that's when your buggered. If you review it every quarter with your accountant ( or by yourself) then you can usually keep control. One of my salons took £84 last year and it made me sweat!

Also make sure you put your prices up and explain to clients who query that you've had to register, they will understand- you can't swallow everything!

 

[daydreams01]

I'm in exactly the same boat and because I'm unlikely to go loads over it once I hit it, I just don't want the hassle, plus accountants fees will go up as he will have more work to do. They really don't make it easy for small business. Where NMW has gone up, there is so little room for any decent profit now. I'm 4 years in and it's great to see the progress and makes me feel really proud of what I have achieved, but I feel like it's a punishment for working hard!

 

[Bettyboobumpkin]

I know it's really rubbish, I've just managed to stay under last year but this year we'll have to get much busier to make it work otherwise it will cripple me.

 

[Carlalouise]

I'm in exactly the same boat and because I'm unlikely to go loads over it once I hit it, I just don't want the hassle, plus accountants fees will go up as he will have more work to do. They really don't make it easy for small business. Where NMW has gone up, there is so little room for any decent profit now. I'm 4 years in and it's great to see the progress and makes me feel really proud of what I have achieved, but I feel like it's a punishment for working hard!

That is exactly how I feel, I've worked so hard over the last four years, we are open 6 days a week and some evenings and I'm here for all of them!

My daughter, who works with me has just done her course on Microblading, she's got some assignments to do and then she will be up and running, I'm hoping this will take off and bring in more revenue.

I'm also looking at doing my VTCT 4 in laser next year, I'm feeling a little worried and down at the moment but I'll get over it, onwards and upwards.

Good luck to you, you've obviously worked really hard and should be really blooming proud. I wish you lots of success, here's to a very prosperous business!!! xxx

 

[daydreams01]

Thanks and well done to you too. Are you going to set up a separate business for your daughters micro blading as that will be a lot of revenue t go through your books, will she be self employed renting the room?

 

[Carlalouise]

Thanks and well done to you too. Are you going to set up a separate business for your daughters micro blading as that will be a lot of revenue t go through your books, will she be self employed renting the room?

No she works for me full time as a beauty therapist , I sent her on the course so it cannot be done separately.

 

[squidgernetball]

Thanks for the references guys and here's how to spell my name [emoji23]

We hit the vat threshold about 2.5 years ago. It's crap! So I knew we couldn't creep over, we had to fly over. Turnover now is in the region of £150,000 so we're flying. A few things to bear in mind. The more your turnover is made from retail, the less vat you pay. Retail makes up about 1/3 of our turnover and that is literally a lifesaver. I have a personal accounts book where I track every penny that comes in and goes out and I reconcile this with my statement every month. When I put in that days takings, I immediately deduct 20%. Every so often I transfer a lump sum to my 'VAT' account. This has kept me sane. If I had to just magic it out of the air it would cripple me.

Like your daughter @Carlalouise, we do an expensive treatment. I charge £175 for needling which costs me around £40 and takes about 75 minutes. These higher cost, higher profit treatments help save the day - and all clients having them are on the skincare that they buy from us so a win win.

Good luck with it. If I can help, just ask.

Vic aka Squidgernetball [emoji8]

 

[Beckybee]

How many months had you to go until your years end.

I read on here someone who was approaching years end and the vat threshold. She reduced all her prices so she didn't go over. I thought this was crazy, but it did make sense, 1 p over and she paid 20% so she kept it lower by lowering her prices for a month. I think you have to concider this if you are close to year end.

By keeping an eye on the books you should have an indication on when you will go over, you then have to make the decision, slow it down or smash it through.

 

[BannerPenguin]

How many months had you to go until your years end.

I read on here someone who was approaching years end and the vat threshold. She reduced all her prices so she didn't go over. I thought this was crazy, but it did make sense, 1 p over and she paid 20% so she kept it lower by lowering her prices for a month. I think you have to concider this if you are close to year end.

By keeping an eye on the books you should have an indication on when you will go over, you then have to make the decision, slow it down or smash it through.

I did read about someone doing this but it's silly really. Not something I'd recommend. Especially as the following year you'd still have to register because you have to if you anticipate you'll go over which if you just under the threshold that year, logically you'd expect to be over it the following year.

 

[Carlalouise]

Thanks for the references guys and here's how to spell my name [emoji23]

We hit the vat threshold about 2.5 years ago. It's crap! So I knew we couldn't creep over, we had to fly over. Turnover now is in the region of £150,000 so we're flying. A few things to bear in mind. The more your turnover is made from retail, the less vat you pay. Retail makes up about 1/3 of our turnover and that is literally a lifesaver. I have a personal accounts book where I track every penny that comes in and goes out and I reconcile this with my statement every month. When I put in that days takings, I immediately deduct 20%. Every so often I transfer a lump sum to my 'VAT' account. This has kept me sane. If I had to just magic it out of the air it would cripple me.

Like your daughter @Carlalouise, we do an expensive treatment. I charge £175 for needling which costs me around £40 and takes about 75 minutes. These higher cost, higher profit treatments help save the day - and all clients having them are on the skincare that they buy from us so a win win.

Good luck with it. If I can help, just ask.

Vic aka Squidgernetball [emoji8]

Thank you Squidgywhatsit - Vic!! How's the Caci doing at yours? It's massive here and the reason why we have gone over.

I've been looking into the needling and doing my VCTC 4 for laser but this will have to wait until next year now as no time to take off.

Would love to know more about the needling if you have any info I'd appreciate a steer in the right direction. xxx

 

[salon doctor]

In January, after trying so hard not to, we have ended up having to be VAT registered. I don't know about anyone else but for me as a small business it's going to cripple us as to keep in line with other salons (who are not registered) we just can't put our prices up, so this money will be coming out of our small amount of profit!! All our big outgoings such as rent and wages do not have VAT so we cannot claim back on these and now the flat rate scheme has gone up there doesn't seem to be any point in doing this.

My accountant has been of very little help, he just kept telling me to not go over, cut days and hours down, don't take anymore clients on, as he's seen small business's go under due to their success!! What is the point of having a business and not growing it??

Any advice from any of you lovely salon owners on how you got over this hurdle, would be much appreciated, for me at the moment the whole system seems so unfair as everyone knows your profit and turnover, which is what they go on is completely different.

I am determined to make a good profitable business which I and my staff are proud of but I also need a wage and don't want to be doing all of this to pay the tax man everything

I have ( along with many many other salon owners ) been dealing with this vat carry on for years and years

the government operate on a system of rules and figures, so if rules are rules then that door swings both ways !

accountants are more often than not no help at all so.....

perhaps re structure your business model, it can be done and its all perfectly legal, also take a look at splitting the business in to two or more parts

for example, how is your premises set up, is it a place where hairdressers and beauty therapists work or whereby you offer space etc etc
so there is a lot more than meets the eye on how to re structure.

its not vat thats the problem its the vat level of 20% that is just disgusting any way you look at it.

if we give a guy a haircut at £20 with almost no reclaim then why oh why should we be giving £4 to the vat man !!!!

at the end of the day, vat reg is based on turnover which is just a scam ....end of. you can turn over a hundred grand and be running at a loss !!!!

cheers

 

[squidgernetball]

Thank you Squidgywhatsit - Vic!! How's the Caci doing at yours? It's massive here and the reason why we have gone over.

I've been looking into the needling and doing my VCTC 4 for laser but this will have to wait until next year now as no time to take off.

Would love to know more about the needling if you have any info I'd appreciate a steer in the right direction. xxx

Caci has been fab.

I've done so much needling training now. Best by far was Victoria Ammoscato. She is training again in September at my salon. I did peels and needling with her over 2 days. Really reasonably priced and fabulous products. PM me if you want more info.

Vic x

 

[Passionate about skin]

Caci has been fab.

I've done so much needling training now. Best by far was Victoria Ammoscato. She is training again in September at my salon. I did peels and needling with her over 2 days. Really reasonably priced and fabulous products. PM me if you want more info.

Vic x