Self employed - VAT dilema

[Lisa111]

Need some advice please!

A new hair salon opened in August 09. I am working part time self employed on a 50/50 basis.

I got a letter today from the owner saying that she has had to register her salon for VAT. In Decemeber the rate was 10.5% and from January will be 11.5%. She says that my monies would be subject to VAT and my total takings for the week will be reduced by these amounts to cover my share of the VAT.

In other words she is reducing my takings by the percentage of VAT then giving me the 50% net of that.

I have no idea if she is allowed to do this or if this is right or what the heck to think or do. Does anyone know of anywhere that I might be able to get more information from or if anyone has any experience or knowledge in this field that might be able to shed some light on the matter?

Thanks!!!

 

[jotommo]

what does your contract say the rent is?? coz its in the contract! if that doesn't mention the vat then surley she can't just go changing it??

 

[Ruth Mills]

If it's any help, it sounds like she's on the Flat Rate Scheme for VAT, given that they are increasing it from 10.5% to 11.5% (as opposed to going up from 15% to 17.5%). This means that she can't claim VAT back for any business expenses or purchases, but just pays a flat rate of VAT on the salon's gross turnover (so for every £100 that the salon takes, the VAT man would get £11.50).

 

[loubylou]

Your local inland revenue office would be able to give you the correct answer but i dont see how if you are self employed that you are responsible for any VAT,
the salon owner is vat registered not you,
the way i see it is you would give her 50% of your takings and she would have to pay the vat on that amount as that is the amount that the salon has taken,

if she had to pay vat on the full 100% then you would be employed by her, the takings would be the salons and she would be paying you the 50% commission,

but this is just the way i see it so i would get the correct answer from the inland revenue office, they are nice and will help you, hth

 

[Ruth Mills]

Your local inland revenue office would be able to give you the correct answer but i dont see how if you are self employed that you are responsible for any VAT,
the salon owner is vat registered not you,
the way i see it is you would give her 50% of your takings and she would have to pay the vat on that amount as that is the amount that the salon has taken,

if she had to pay vat on the full 100% then you would be employed by her, the takings would be the salons and she would be paying you the 50% commission,

but this is just the way i see it so i would get the correct answer from the inland revenue office, they are nice and will help you, hth

Yes, it would definitely be worth getting in touch with the Inland Revenue, as they will be able to give you the proper advice on this; it will be complicated by the fact that it sounds like she's on the flat rate scheme, so probably wouldn't be able to claim the VAT back on what she pays you...

 

[shedunlop]

Contact the VAT office yourself they are very helpful. We became a Ltd company last January and actually had a VAT inspection on our first return. The Vat man was lovely and extremely helpful so I would never hesitate.

For what it's worth this does not sound right, she is not selling you a product or service so I don't see how she can charge you VAT. I might be wrong but it doesn't sound right to me.

 

[persianista]

I think it is correct. I am vat registered and looked into all this. The rules are pretty complex, but if the money is going through the salon till/card machine, that money is vatable. It's why I have never really understood the percentage splits that get talked about on here.

 

[angelina221]

Are you self employed? If you are then you should take all the money from your clients. You should have your own till and card machine and then if you work on a percentage basis, you give the salon owner 50% at the end of the week/month. Self employed means working for yourself so no-one else should take money from your clients but you. You then pay your own tax and national insurance. Your clients should be aware that you are self-employed also. I am vat registered and this is what i was told should happen.

 

[katiebbaby]

My partner has just said that if your clients pay you and not hairdresser than NO she cant charge you it is her reponsibility not yours. You just pay her rent? you are self employed, what is in your contract? how much are your earnings? these can be factors, do you have your own till etc. My hubby is an charted accountant and also a business consultant. x hth

 

[~cHeRiSh~]

If you are self employed then you must take your own payments, and as you are not registered for VAT then there is nothing to pay on your income. If you are paying her rent then this is VAT exempt, so she wont have to pay VAT on this income. HTH :hug:

 

[Curly Bamboo]

Are you self employed? If you are then you should take all the money from your clients. You should have your own till and card machine and then if you work on a percentage basis, you give the salon owner 50% at the end of the week/month. Self employed means working for yourself so no-one else should take money from your clients but you. You then pay your own tax and national insurance. Your clients should be aware that you are self-employed also. I am vat registered and this is what i was told should happen.

Or another arrangement which I am familiar with is...

• Salon is VAT registered.
• Therapist is self employed.
• Salon owner and Therapist agree on pay rate. For example, it can be percentage ratio or hourly rate + commission.
• All payments are put through the Salon's till.
• Therapist invoices the Salon for her work.
• Salon pays Therapists.
• Therapist is responsible for paying her own tax.
• Salon pays for tax on takings.
• Salon claims Therapist's invoice as an expense.

What has happened is the Salon did not plan for VAT. They get hit with the 11.5% and doesn't want to bare the cost alone.

Is the agreement for a 50/50 share on takings OR profit?

 

[angelina221]

It really is best to take your own payments. If you are working at the same place for the same amount of hours every week then you should be classed as employed. They are clamping down a lot now on rent a chair for this reason. If you set your own hours, sort your own money etc.... then you can be classed as self-employed. Bit of a minefield-lol

 

[jes]

If your takings are going through the salon owners till, then your takings are partly responsible for pushing him/her into the VAT threshold. I would therefore think that he/she are within their rights to ask you to pay the VAT on your takings.

As mentioned above the best solution is to keep the two takings separate.

 

[Curly Bamboo]

Keeping separate payments would make it easier however depending on the individual it may not be the case where the client can pay them directly.

Treatment and services can be outsourced, and when this happens an agreement is made for pay. In my experience you don't discuss the pay to include or exclude VAT. It is not mention because this is the responsibility of the salon which should of been planned for.

If the salon would like the share the VAT costs then perhaps this is a good opportunity for both parties to re-negotiate the pay.

 

[Lisa111]

Thanks everyone.

I don't have a contract, just a verbal agreement that if i decide to leave then I need to give a months notice.

Also whatever the clients pay for their treatments goes through the main till and then the following week I get my half of the previous week's takings which I made. (On many occasions she has bodged this up too which is why I keep my own records of what I've done and how much I'm owed). She usually gives me a receipt with the payment.

I will speak to the Inland Rev though just to clarify as my head is still a wee bit confused.

 

[Blue Rose]

Thanks everyone.

I don't have a contract, just a verbal agreement that if i decide to leave then I need to give a months notice.

Also whatever the clients pay for their treatments goes through the main till and then the following week I get my half of the previous week's takings which I made. (On many occasions she has bodged this up too which is why I keep my own records of what I've done and how much I'm owed). She usually gives me a receipt with the payment.

I will speak to the Inland Rev though just to clarify as my head is still a wee bit confused.

Sounds to me like you're being classed as an employee & not self-employed. If you were truly self-employed, as already mentioned, YOU should be giving HER money & taking money from the clients yourself to go in your own takings account.

 

[persianista]

I agree with Blue Rose. The client should pay you directly, then you pay half your takings to the salon owner under a "rent" invoice. Even then, I would speak to the revenue to clarify things. Getting it wrong for one year can result in a higher tax bill, getting it wrong for a few years can result in a MASSIVE tax bill.

 

[bombini]

I wonder if the reason she thinks you should pay her the VAT is because your takings are going through her till, and her books ?

When I rented a room I occasionally used the main salons card terminal but the salon owner asked me if I could get my own as she had to pay VAT on all her transactions. Im not registered for VAT so I assume that all her card print outs went directly to her accountant and he just added the VAT on ? Perhaps someone registered would know ? Anyway I got my own card terminal and problem solved.

As others have said you should be taking the payment for clients then giving the salon owner her share.

I prefer to just pay a set rent that way there is less fuss imo

 

[Curly Bamboo]

I wonder if the reason she thinks you should pay her the VAT is because your takings are going through her till, and her books ?

When I rented a room I occasionally used the main salons card terminal but the salon owner asked me if I could get my own as she had to pay VAT on all her transactions. Im not registered for VAT so I assume that all her card print outs went directly to her accountant and he just added the VAT on ? Perhaps someone registered would know ? Anyway I got my own card terminal and problem solved.

As others have said you should be taking the payment for clients then giving the salon owner her share.

I prefer to just pay a set rent that way there is less fuss imo

I was in a similar situation. The place where I rented knew how to do the accounting so that my takings did not effect them. Don't know if this is the correct accounting terminology but it was a reversal. This was a temporary arrangement not on-going.

However, I do have my own card payment system now