50/50 commission & VAT

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Can you help?

Im opening a new barbershop and will be offering a 50/50 split with all my barbers which i will pay them at the end of each week.

If for example i charge £20 for a cut and give my barber their 50% (£10)

Do i only pay VAT on the £10 income i earn after they have been paid?

That would then mean that my barbers would have to pay income tax & NI on the £10 they have been been paid.

I know this can be very shady so any help or advice will be appreciated?
 
I think what you are saying about the vat and tax is probably right, but only if your barber's are truly self employed, which by the sound of your first sentence they are not, they need to be able to take their own money from each client, so they would be able to take ther 50% from after each client has payed to be self employed among other things, like being able to wear what the want and come and go as they please, take a break when they want ect, other wize they will be entitled to employees rights and you might find your self in trouble and with a big bill from hmrc :-D

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Hi Lynn Amber,

Thanks for the information. :)

They will be self employed but there will be a agreed code of practice & conduct when they work in my business....

  • hours will be agreed
  • breaks will be agreed
  • uniform will be standard
  • all sales will go through the till
  • service & product sales will be assessed at the end of each month

etc etc

I think the best solution would be to become a limited company & pay corporation tax on profits. Which means i pay tax on whats left after all bills & commissions have been paid.
 
Ok all im going to say it be very careful all of these thing have to be done of there own free will, personally as a self employed person I would not be tied to these conditions, I would if I was employed :-D

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Ok all im going to say it be very careful all of these thing have to be done of there own free will, personally as a self employed person I would not be tied to these conditions, I would if I was employed :-D

Sent from my LT30p using SalonGeek

Also the law is actually quite strict on those things, it just a lot of shop owner and self employed people don't know it :-D

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Its no different from being a subcontractor

As an example...

British Gas will use subcontractors to install boilers in customers homes but there will be an agreed code of conduct & practice

They wouldn't expect engineers to turn up when they like, in filthy uniform or to take cash in hand etc

The principles are the same.

I want the team to be in control of their own revenue to maximize their earning potential & mine. I dont like to micro manage but i am protective of my brand and my high service standards
 
Also the law is actually quite strict on those things, it just a lot of shop owner and self employed people don't know it :-D

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The law is quite simple.

I need to declare my accounts every 3 months and those accounts will show that i paid a commission to a team of self employed barbers who work in my premises.

Those team members will then be responsible to pay their tax & NI
 
The law is quite simple.

I need to declare my accounts every 3 months and those accounts will show that i paid a commission to a team of self employed barbers who work in my premises.

Those team members will then be responsible to pay their tax & NI

Unfortunately it's not that simple at all. Take it from a salon owner who has been there, done that.

Apart from the implications of employed vs self employed, the VAT man could make a case that you have artificially segregated your business to avoid VAT and hit you with a massive backdated bill. By massive I mean about £80k. It takes ages to appeal and a lot of money. Be very careful.

Your British Gas analogy works for British Gas because those sub contractors could probably prove that British Gas was 'their' client whom they fitted inbetween their other private work. Your barbers will be working mainly in your premises.

It's a grey area. Rather than consult the forum I'd recommend you consult a good accountant. You can tell them that you would like to legally pay as little tax as possible and show them your opinions. They will figure out a way that should keep you out of trouble.

A VAT investigation drags on forever and I would only ever wish it on my worst enemy.
 
Unfortunately it's not that simple at all. Take it from a salon owner who has been there, done that.

Apart from the implications of employed vs self employed, the VAT man could make a case that you have artificially segregated your business to avoid VAT and hit you with a massive backdated bill. By massive I mean about £80k. It takes ages to appeal and a lot of money. Be very careful.

Your British Gas analogy works for British Gas because those sub contractors could probably prove that British Gas was 'their' client whom they fitted inbetween their other private work. Your barbers will be working mainly in your premises.

It's a grey area. Rather than consult the forum I'd recommend you consult a good accountant. You can tell them that you would like to legally pay as little tax as possible and show them your opinions. They will figure out a way that should keep you out of trouble.

A VAT investigation drags on forever and I would only ever wish it on my worst enemy.

Im not trying to avoid tax but to use the same commission system that has been used in Salons for years.

I just set the expectations for those who wish to use that system in my salon. That was my point.

I will talk to my accountant though. Cheers! :)
 
I have to agree that you are planning to blur the lines of employed and self employed.

HMRC are REALLY strict on the rules of being self employed. You can't tell a self employed person what hours & when to work and you can't pay them at the end of the month. They take their earnings and pay you as your their landlord not their BOSS, they are their own boss.

Tell you what why don't you go and put the details you want to use into the HMRC ESI (Employment Status Indicator) tool and see if it say's they would be classed as self employed or employed:
https://esi2calculator.hmrc.gov.uk/esi/app/index.html
 
I have to agree that you are planning to blur the lines of employed and self employed.

HMRC are REALLY strict on the rules of being self employed. You can't tell a self employed person what hours & when to work and you can't pay them at the end of the month. They take their earnings and pay you as your their landlord not their BOSS, they are their own boss.

Tell you what why don't you go and put the details you want to use into the HMRC ESI (Employment Status Indicator) tool and see if it say's they would be classed as self employed or employed:
https://esi2calculator.hmrc.gov.uk/esi/app/index.html
Thanks this is what I'm talking about ,also to who said about a contractor they are different from self employed too, im I right buggybear :-D

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HMRC will deem you liable for VAT on the full amount if you are collecting the takings centrally.... Period. I've recently had a VAT inspection and have clarified this point specifically..
 
Also, to add... Self employed people can choose their own price list.

Why don't you look at employing people? You'd make a better profit per client & you can dictate those points you mentioned.

No way would I personally agree to your terms, nor would I be happy to let you take my payments, & pay me at the end of the week/month.

Unless I was employed by you.

Unfortunately you can not decide your staff are employed or self employed just like that.

They either get the benefits of being SE (which you have mentioned they can not) or they get the benefits of being an employee.

My personal preference for the salon owner & SE person is a set weekly (or daily) rent, the owner gets paid regardless (busy/quiet/sick/on holiday).

What if a SE person wanted to take a 3 week holiday... Would you be happy with out their takings for 3 weeks? Off sick? Etc.

If you went down the employment route, You could still offer the added incentive of commission per client 5-10% say.

Good luck. :)
 
The law is quite simple.

I need to declare my accounts every 3 months and those accounts will show that i paid a commission to a team of self employed barbers who work in my premises.

Those team members will then be responsible to pay their tax & NI

But you are choosing: hours, prices, uniform, breaks etc, that is what will get you in to trouble if HMRC found out.

Xx
 
I'm afraid you can't have it both ways.

As previously mentioned before, if you are taking payments through a central till, these sales will be vatable once the threshold is met (79k). It doesn't matter a jot what you have paid out of that income, VAT is a tax on sales, not on profit. The only thing offset against your bill will be the VAT you have paid to your suppliers.

If you are paying staff out of your income, you are employing them. If you are telling them when to work, what to wear, and what to charge, you are employing them. Self employed staff pay YOU as their landlord, not the other way around.

Not sure why you would create a limited company and expose yourself to corporation tax liability, unless you are sure opening a huge business with large amounts of money involved and it is wise to limit your personal liability.

Please do see a good accountant. I know several people who have ended up in dire straits over these issues. What might seem like the easier way now could prove horrendous further down the line.

J
 
I have only ever paid my team with a basic wage but i would like to change this with my new business model so all your advice is very helpful guys.

So if i employ someone on the books as a full time employee but they are working on a straight 50/50 commision (not chair rental)

Then what are their earnings when they are sick or on holiday?
 
If you employ someone you must pay them at least minimum wage, and pay tax and NI from their wages to HMRC.

With this comes all the usual things regarding employment - they are entitled to holidays etc. which must be paid.

If they only earn when they are working on clients, then they are self employed, and should be paying you either a commission or a set rent. This means that they call the shots on working hours, prices etc.

I have had staff work both ways, and must say I preferred to employ them as I felt it gave me better control over my business.

Hope that helps

J
 
Agree with the above, you will have to pay them minimum wage per hour at the very least. This could be sweetened with a small commission per client, or when they have took over x amount.

Does sound like what you need is employees.

If you dont want control over the business(staff, pricelist, hours etc)but just want to rent the space out then SE chairs could be rented out. Less worry or mither for you, & you could sit back & earn money from providing them with the space to run their own business.

Xx
 
I have only ever paid my team with a basic wage but i would like to change this with my new business model so all your advice is very helpful guys.

So if i employ someone on the books as a full time employee but they are working on a straight 50/50 commision (not chair rental)

Then what are their earnings when they are sick or on holiday?

You could employ them on a 50/50 split and if they are on holiday just give them minimum wage, if there is a week they don't make minimum wage you would have to top it up to minimum :-D

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You could employ them on a 50/50 split and if they are on holiday just give them minimum wage, if there is a week they don't make minimum wage you would have to top it up to minimum :-D

Sent from my LT30p using SalonGeek

This isn't quite right Lynn.

The law states that when calculating holiday pay for somebody whose wages varied due to commission etc. you must work out the average pay based over the previous 13 weeks and pay them that figure. Only paying minimum wage whilst on holiday would be illegal.
 

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