Vat

[bexster]

i had a depressing conversation with one of my customers today, she works with VAT seeking people out who should be paying VAT etc..
she said in not so many words that hairdressers should try their best not to go VAT registered... and all the people at her work say the same thing..i have heard this advice from my accountant too...

im ok whilst im working on my own, but as soon as i employee any stylists this will definitely take me over the 70 grand threshold ..

just thought id ask you guys...
1... how much would the salon have to take, to be worth being VAT registered
2... is it really as bad as people say
3.. why so bad for hairdressers

i do know the fundamentals of it, 17.5% of top line goes to VAT but if the salons making good profit why is it so bad for hairdressers more than other companies??

 

[fozzyo]

My husbands business is VAT registered. As long as you keep a record of everything its not too difficult.

You essentially need to keep a list of what comes in and how much VAT has been charged. Then keep a list of what you buy and how much VAT you have paid, and then every quarter write a cheque to HMRC for the difference.

Mat

 

[fozzyo]

And just to add, and to continue sounding like a broken record, if you are scared about Tax Inspections look into joining the Federation of Small Businesses - they deal with any tax inspections as part of your membership so you don't have to pay accountants a fortune to represent you.

 

[tog]

I suppose the reason it's so bad for hairdressers (especially when they have just gone over the VAT threshold and have just started paying VAT) is because as a service industry it is more costly.

If you are purely a retailer, then you offset a lot what you pay the government against everything you purchase for the business (eg the stock you buy at cost price). The more you sell (and therefore the more VAT you start to pay) the more VAT you can then claim back from the cost of the stock you have purchased.

Whereas as a hairdresser, as soon as you go over the VAT threshold, suddenly you are paying out an extra 17.5% - and where does that come from? do you suddenly put your prices up 17.5% to your clients so that you have the extra money to pay your VAT bill? I don't think so - you can only increase prices gradually, after all, or you will start to lose clients - so no, what you end up doing is having to absorb the drop in your income initially at least. Also no matter how busy you are, unless you're doing a lot of selling of products etc, there is a limit to how much stock you buy, so you are never going to have a lot of VAT to claim back on this stock when you do your VAT return.

I'm not an economist but I think that's the gist of it. A service industry will always be more badly affected by going over the VAT threshold than a retail business.

 

[jes]

VAT is bad news for any company (not just hairdressers) who deal with the public and non VAT registered companies.

If you were made a VAT registered and everyone you dealt with were VAT registered businesses/companies you would simply increase your prices by 17.5% and the companies dealing with you wont mind as they reclaim it.

However you're dealing with the public, who can't reclaim VAT, so it's likely that you will suffer the loss on your takings (unless you can get away with a 17.5% increase in your prices:biggrin

 

[kimi1101]

this is how vat was explained to me, as im in a v similar situation to you. atm we are turnign over around £1300 a week, which comes in at...67600 a year (Vat reg is 68000)

if you have to pay vat, that means your clients have to ay you vat. meaning that if you want £100 from them, you need to charge 117.50 and give the 17.50 to vat man. its crap for hairdressers as you need to increase prices by 17.5% for it not to affect your takings. which is difficult to explain to a client.

at first i was really apprehensive about it. but iv been in business less than a year and a guy at business gateway said to me "unless you have no plans to ever get any busier, then you need to do it" and i have a stylist starting in june and also a chair renter starting this week. if you decide to do it, you have to put prices uo or accept your gonna see a big chunk of profits leave your bank balance. go to business link for more advice they helpd me a lot.

but basically you have to do it at £68000 (not sure if it changed with the new tax year) which roughly comes on at £1300 a week, and you face being penalised if you dont do it when you should. honest go to business link, great help. x

 

[persianista]

Vat is the bane of my life.My turnover is high so I dont qualify for flat rate schemes etc. Hairdressers are disproportunately penalised by vat, as labour is our big cost, but cannot be offset. My accountant once told me that once the vat threshold is reached, I needed to push turnover above 100k very quickly to earn anything extra.

 

[bexster]

thanks guys thats very helpful.. hopefully if i take someone on they will be successful and i can cope with the vat man too....

oh well here come the grey hairs and the staff problems..lol....but it`ll be worth it