VAT deducted on commission invoices for self employed staff

[Lpolky]

Hi guys,

So a while back I was enquiring if anyone knew if as a Salon I have self employed staff and all their takings go through my till and then they invoice me weekly and I pay them their cut of the percentage. I managed to get confirmation from my account and also on the HMRC website they don’t don’t say you can’t do this so I’m really happy as makes for a more smoother running Salon from clients point of view if we take money at one point rather than each staff member taking separate money.

So the question I have is...if we are vat registered I will be increasing my prices at least 20% to cover this. So when the self employed staff invoice me is it right that they should deduct 20% off their prices too and then receive their % on the final balance??

Thanks xx

 

[Beckybee]

I'm certainly no expert. In my eyes it's complicated.

If I buy something from a supplier who isn't vat registered for £20.
£20 is what I pay. If you are selling that service to a customer, You will then have to add the vat to that figure or you will lose out. As its classed as turn over and that's what you will pay vat on.

The problem is, if the self employed staff are not registered for vat and the service was £20 they would lose out if they reduced their cost so you can add the vat to the price so you get to the £20.

In my eyes it needs a whole set of prices so everyone comes out with the same money.

The SE staff have to advertise their costs at a higher price than what they charge you for, so you can add the vat to it so it cones out the same price.

They basically are subcontracting to you

I could be totally wrong, so please seek the proper advise

 

[AcidPerm]

If you're VAT registered and you put all the payments through your till, it has to include VAT as it's all classed as income.

As a s/e person, I wouldn't be happy with that at all as their prices legally have to include VAT (because it's going through your till) but they can't claim any VAT back.

They'd be much better off taking their own monies direct from their clients with no VAT charges and paying you a percentage.

 

[EssexFreelance]

From what I’m reading you can’t have your cake and eat it.

You can’t expect your clients to pay 20% more for your VAT (which doesn’t work as it’s not a 20% increase- £30 would be made up of £6 VAT and £24 service. £24 plus 20% is £28.80)

Your ‘staff’ should be sucking it up either.

It’s your VAT bill they are just contractors

You should be invoicing them for rent.

 

[Lpolky]

It’s not that I’m wanting to have my cake and eat it as you say, I’m just trying to get my head around it and make sense of how it would work paying their cut.

So ideally they get 40% off each client so for example shellac manicure
£32 which includes the vat. So they should receive £12.80 and I would receive £19.20 - 20% vat = £15.40

That’s fair all round?

 

[Lpolky]

Also so out of my cut for example £19.20 I will be paying the 20% vat, plus the stock costs supplied by me, also all salon equipment, Salon advertising to get clients in. It all adds up. So for a shellac manicure for example as above I would prob be left with approx £8/£10! Per client!

 

[Beckybee]

I get you, I'd speak to your accountant, who'll be able to give you a maths formula, so you can work it all out and everyone gets what they want.
Best of all you'll find out what's correct and not, you don't want to be hit with a big vat bill because you worked it out wrong or thought this was the correct wayt to o go

 

[BannerPenguin]

The problem is the VAT liability is yours, not there’s. This is where the waters get muddy.

IE THEY can charge £32 for a shellac manicure and your 60% would be £19.20 which you have to charge VAT on which makes £23.04. As their businesses aren’t VAT registered they can’t claim that back.

This is the problem with percentage splits. It gets messy as a general.

You need to avoid registering for VAT.

They shouldn’t be invoicing you weekly, it should be the other way round and they all take their own money. You avoid VAT. They earn.

Also, you don’t need to pay for their advertising. That’s their job. It’s their business.

 

[Lpolky]

Thankyou both. Yes I need to sit down with my accountant. Yes it’s taking me a while to get it in my head how it will all work. Yes of course the vat liability is mine not theirs.

I think maybe I will start this way and then actually look at employment after 6 months.

The reason I do all the advertising is because I am offering the Salon working this way, so instead of them all paying me a daily/weekly rent I am doing this percentage split and all going through my till so it works as a Salon and clients don’t feel there is anyone separate and don’t really want the clients paying individuals separately. I want to support them as much as possible.

Ideally I will be having 3 beauty therapists and 2/3 hairdressers so would be very complicated having each of them taking all separate money.

I have been working this way on a smaller scale for the last 6 Year’s with just beauty and it works well and I have a great team.
There is obviously an understanding that they work their own hours and look after their own column but we work as a team. They can advertise themselves but I also advertise a lot for the Salon as a whole plus they get a higher percentage for their selected skills that I don’t offer as a Salon for example - Hair extensions and lash extensions

It’s all research for me so will speak to my accountant and see how we go.

 

[salonfrog]

Hi Lpolky

VAT is a very complicated area as you know.

Get your accountant to go through this with you. As an accountant myself, I know we accountants love this sort of thing

 

[Eloise86]

It’s really not complicated at all, they pay you what they need to when you invoice them. Personally I thinking you’re treading very thin Ice as I think you’re more comfortable having control of their money. It doesn’t sound like self employment to me and I think you should probably see another accountant for advice as I don’t think the advice you’ve had is very reliable. Remember it’s you that gets in trouble NOT the accountant

 

[Lpolky]

Thankyou all yes I will be having another meeting with my accountant. My accountant is excellent so take his advise seriously.

I think what I’m trying to do is keep the hairdressers happy and they only want to come on board self employed. So was thinking to keep everyone self employed but I think as you say I’m making it very difficult and think I would actually be worse off than if I employed.
I will look at employing the beauty side and starting with self employed hairdressers as you all have suggested and then as we grow and I become more confident as an employer I can employe another hairdresser on top.

Thankyou for your advice. It’s all so new to me, everyone has their opinion and advice but I just need to make sure it’s right for me also.

 

[Eloise86]

Id be checking with hmrc to make sure it’s not just your accountants opinion and advice your listening to, it sounds dodgy to me. After all it’s them you’ve got to please.