Tax and profit - question salon owners

[beautician12345]

If you own a salon, as I am hoping to, could you just confirm (or correct me) about how I'm working out tax and profit...

EG (These are made up figures - obviously!!!!!!)

Rent £10,000
Salary for Therapist A £20,000
Salary for Therapist £30,000
Electricity £1000
Gas £2000
Rates £3000
Phones £4000
Products £5000

Total outgoings for year = £75,000

Revenue for year £100,000

So, am I taxed on the £25,000 profit?

Apologies if I am being a dumbo!!

 

[MrsHBeauty]

I think so, but someone was saying to me the other day about your current stock levels aswell, so if at the end of the tax year you hold £2000 (trade price) of stock then it would £27k you'd get taxed on.

I have my appoitnment with my accountant in 3 weeks where all my questions will hopefully be answered.

x

 

[linzi]

There are no dumb questions, just those to which you don't know the answer

Apologies if I'm preaching to the choir but basically, yes; taxable income = gross profit - net profit.

Your gross profit is absolutely every single penny that comes into your business: money for services; money for retail; interest that you earn, and so on

Outgoings are everything that you need in order for your business to function: rent, rates, consumables, products, wages, utilities, etc, etc. A good accountant will be able to ensure that your tax liabilities are minimised - they can save you more than you they cost!

Your NET profit is your gross minus your outgoings, so everything that comes in, minus everything that goes out. Or, as you said: 100,000 - 75,000 = 25,00


On a related note, it is prudent to put around a third of everything that comes into your business into a seperate account so that you will always have your money for tax on hand. That way, you won't have to scrabble around in January (always the most inconvenient time!) or July when the bill lands.

 

[Geminikelli]

Also remember if self employed you will have a personal allowance can't remember but it's roughly £7500 so £25 minus allowance then taxed on that.

 

[salon90]

Hi,

It all depends if you are a limited company or a sole trader.

You will need to account for VAT as you will turnover more than the current threshold.

Always best to speak to an accountant....they normally give you a free initial meeting.

Hope this helps : )

 

[beautician12345]

Many thanks!

Last question, I hadn't taken into account the VAT, at what point is that 20% deducted?

In my example above would I pay VAT on the entire £100,000 turnover, or

The amount above £77,000 (the VAT threshold) so in this case £33,000, or

Do I only pay VAT on the net profit? In this example £25,000

If the VAT is taken first I'm paying tax on the remainder or is it the other way around!

Thanks for being so helpful! I will book in to see an accountant but I just wanted a rough idea of whether or not the whole thing is worth it after all the tax and charges!!!!

 

[persianista]

vat is payable on the whole 100k, but you can offset the vat you have paid out on purchasing prducts and vatable services.

So you take the 20% vat off first, then deduct expenses, then pay tax on whats left.

 

[beautician12345]

So in my example above the only vatable items which I could offset would be:

Electricity £1000
Gas £2000
Rates £3000
Phones £4000
Products £5000

Minimal compared to the other costs.

What a swizz!

Really cheeses me off I'll pay 20% to the government and then get taxed again on what's left.

I wonder, is it worth it?!!!

 

[Beansy]

So in my example above the only vatable items which I could offset would be:

Electricity £1000
Gas £2000
Rates £3000
Phones £4000
Products £5000

Minimal compared to the other costs.

What a swizz!

Really cheeses me off I'll pay 20% to the government and then get taxed again on what's left.

I wonder, is it worth it?!!!

You'll possibly pay VAT on the rent too. I do. It depends on your landlord's status

 

[JoJo1980]

So in my example above the only vatable items which I could offset would be:

Electricity £1000
Gas £2000
Rates £3000
Phones £4000
Products £5000

Minimal compared to the other costs.

What a swizz!

Really cheeses me off I'll pay 20% to the government and then get taxed again on what's left.

I wonder, is it worth it?!!!

Yep! Feel your pain :sad: you pay 20% for everything that goes through your till, and if you can write a couple of grand off against VAT each quarter, youre lucky!
My advice - keep every damned receipt you can! Parking receipts, if going for work purposes, work clothing (if it has your logo on it), grabbing a coffee on the way to the wholesalers? get a receipt! Even your insurance will have VAT on it so pass that to your accountant too!
It is a swizz, but the NHF have been campaigning for a lower threshold for VAT and a lower amount, eg over £50,000 pay 10%......Im all for this personally! VAT's a killer
xxxxxx

 

[persianista]

Yep! Feel your pain :sad: you pay 20% for everything that goes through your till, and if you can write a couple of grand off against VAT each quarter, youre lucky!
My advice - keep every damned receipt you can! Parking receipts, if going for work purposes, work clothing (if it has your logo on it), grabbing a coffee on the way to the wholesalers? get a receipt! Even your insurance will have VAT on it so pass that to your accountant too!
It is a swizz, but the NHF have been campaigning for a lower threshold for VAT and a lower amount, eg over £50,000 pay 10%......Im all for this personally! VAT's a killer
xxxxxx

Vats a nightmare. Makes me laugh when mobile hairdressers think they should charge like a salon on the basis that they pay for petrol!
Generally labour costs and rent/rates cannot be offset against vat, and these will be your biggest costs. Due to the nature of our work, you never get enough input vat to cancel out the output vat.
Pay the vat a day late, and they fine you.

Roughly based on your figures, your corp tax bill would be around 2200, and you would pay around 15k vat.

Sucks eh?
My accountant told me that once you hit vat level, you had to up your turnover to 130k very quickly to earn the same as when turnover was 77k!

 

[beautician12345]

"My accountant told me that once you hit vat level, you had to up your turnover to 130k very quickly to earn the same as when turnover was 77k!"

That IS depressing!!!

Thanks for all the help people, it is very much appreciated.

I must visit the business forum more often, you're a very clued up bunch!!

x