How to calculate tax for hair extensions

[dolled up]

As the title says really! Need some help cos i cant get my head around this.

Do i tax just my earnings for the fitting or do i tax the whole lot i.e £200 for full head fitting and hair?

I take deposits for the hair and pay the rest on my credit card so im getting a little confued with this :S

My thoughts is that i should only pay tax on the cost of the fitting not the hair but i dont know and i cant find any info anywhere! Please help xx

 

[Lucy-Jayne]

Basic accounting principals are:

Sales (total your sales & retail sales)
less cost of sales (all your expenses, cost of hair, uniform etc etc)
= profit

Then if you earn over the tax threshold each year you work out your tax from that.

 

[dolled up]

Thats still confusing me! Aha :/ ive already got a 'real' job so. Pay 20% tax on all my hair and tanning work. So if i were to do an extension client and charge £200, then i will only earn £30 after tax & class 4 NI. But if i were to do a full head balmain for £500 then i would actually cost ME to do the extensions as i only charge £80-90 to fit them. Am i being thick? God someone help meeeeeeeee! Xx

 

[Beansy]

You pay tax on your profits, depending how much you earn over the year.
Your profit is the money left over when you've paid all your costs (expenditure).

Rather than thinking about the tax on a single situation, it's easier if you think about what gross profit you make over a whole tax year. E.g if you charge £200 for extensions but it costs you £75 to do, your gross profit is £125.
You need to consider your costs though in a 'full recovery' way. Very simply this means that in your pricing structure you should work out exactly how much it costs you to do something with ALL your costs included e.g products, uniform, travel, phonecalls, insurance, utilities etc etc



Get yourself on a HMRC course. It will help, promise!

 

[dolled up]

Ive been on the courses but this problem that im trying to get my head around has only just arisen aha. So say im doing 4 balmain full heads a month & im charging £500 per head (so £150 tax & NI per head) im having to pay out an extra £240 for tax & NI that i havent even made? And im not even making any money? So where does that money come from? Am i even making sense ? Ahaaa :/

 

[Beansy]

Like I said before, you need to think about tax repayments over a year as you pay tax on your profits if you earn more than the threshold.

This is quite basic stuff (sorry, not being rude but the more you understand the more confident youll be) and so if you haven't understood that from the course, I'd suggest going again. It sounds like now you'll have real life examples that you can discuss.

If you are charging £500, how much does it actually cost for you to do this (you need to include all of the costs, as above, from supplies, to travel, to insurance)?

 

[Lucy-Jayne]

Example:

If you earn £500 for doing a full set of extensions, and it costs you £400 in hair, you make a profit of £100.

As you are paying tax on your other job, then you will pay tax on anything you earn doing the extensions.

You do need to take account of all of your other expenses (uniform, advertising etc) but as a general rule of thumb I'd save and put by 32% for tax and NI contributions (unless you're earning tin the 40% bracket).

At the end of the month, take the total of what you've earned (money received from hair extensions), take away all of your expenses for the month (cost of hair, uniform, advertising etc) then you will have an accurate figure for your profit.

Use this figure to work out an accurate amount for your tax at 20% and your NI.

(I've not taken into account any prepayments etc as only explaining this in a basic way)

 

[dolled up]

Dont worry your not being rude i need to get this drummed into me cos my brain is muddled with this situation aha! i charge £80 for the balmain (my offer at thmo)

Lucy-jayne, so i can work my profit out monthly rather than yearly? On the courses i was told you have to work out all of your expendatures (sp?) at the end of the year to work out your actual profit that why im getting confused :S

at the moment im working out my tax & NI (i put away 30% a week just in case i earn more than the threshold for class 2) from what clients pay me without taking into account what it has cost me i.e £xx for a colour...

Its just that ive only realised (starting to get extension clients now yay!) that to do extensions, especially balmain, it it going to cost me to do them and i wont actually make any money untill the tax year finishes in april 2013 :/

So, from what you have said, i can minus my expendatures from what clients have paid me to work out my profit and pay tax on that monthly? Am i saying this right? Might give HMRC a call if they ever answer the bloomin phone!! :S xx

 

[Lucy-Jayne]

You can work out your profit every week if you want to work out how much money you have to put aside for tax and NI, even every day, it doesn't matter, but when you do your tax return each year, you will need to work it out annually and give them an annual profit/loss.

Any tax and NI that you put by should be worked out only from the profit that you make.

If you actually make a loss for the tax year for your extension work, you might be due a tax rebate from your full time job. But that would have to be calculated at the end of the tax year.

If you really think that after everything you've earned, less everything that you've paid out to do the extensions, including training from Balmain etc you won't make a profit for the tax year, then you won't need to put by any tax.

 

[dolled up]

Would anyone be able to talk to me on the phone about this? I understand the rules for paying tax etc but it's just this one service that I'm not 100% understanding :/ x

 

[dolled up]

Anyone? Please (; xx

 

[billie173]

Go on the direct gov website it explains how much you have to pay x

 

[linzi]

Would anyone be able to talk to me on the phone about this? I understand the rules for paying tax etc but it's just this one service that I'm not 100% understanding :/ x

It doesn't matter what service you're doing, they're all the same tax-wise Ideally you should have a separate business acount and keep everything separate so you know what belongs to where.

For the purposes of tax, you only pay on your profit. So if your bring in £500, but £400 of that goes on supplies then you have made £100 profit. Therefore, you only pay tax on the £100 that you haven't spent on products.

When recording your accounts, you'll have a section for incomings, and another for outgoings. At the end of your tax year you could have Sales totalling £20,000, which sounds absolutely amazing! However, you didn't keep all of that money, did you? Because you had to buy stock in order to do these services.

Based on the above numbers of £500 per service, with £100 profit: 20,000/500 = 40 clients.
40 clients x £400 stock = 16,000.
20,000 incomings - 16,000 outgoings = £4,000 profit.
4,000 profit / 20% tax (lower rate) (40% higher rate) = £800 tax to pay (£1,600 higher rate)

That is a massively simplified model, because you will also have petrol/advertising/sundried to pay for, so your tax bill may not even be as big as £800 but I hope it gives you an idea?

Forgive me if I'm teaching you to suck eggs but you record absolutely every penny that comes in or goes out of your business. But you only pay tax on the amounts that you have leftover after everything has been paid for.

If you keep your records neat then the tax return is very, very simple to fill out and they will calculate the amount to pay for you, so you don't even have to worry about it

A handy tip is that when you get paid, put 30% of your profit into a separate account and that way, when you come to pay your tax, you won't have to scramble to find enough money

I hope that helps a little?

 

[dolled up]

Thanks linzi I've PM'd you too xx