Mastering VAT

When a salon reaches the VAT threshold, the resulting costs can have a huge impact on business. Tax specialist Melanie Beech shares six tips to stay on top of tax

As abusiness owner, you must register for VAT once your turnover goes over £85,000. But beware – this is not £85,000 in a calendar year, tax year or financial year, it is in any rolling 12-month period. It’s really important, therefore, that you keep track of your turnover for the past 12 months on a regular basis. As soon as that cumulative 12-month turnover exceeds £85,000, you must register for VAT.

If you are aware that your monthly takings are somewhere near £7,000 per month, I recommend you check the previous 12 months’ turnover every month to make sure you don’t miss the deadline to register with HMRC. You really don’t want the stress and worry – not to mention the fines of being late registering.

There are some circumstances, however, in which an accountant will recommend that a business registers for VAT before they hit the threshold of £85,000. For example, if you open a new salon with employees and are expecting to hit the VAT threshold within the first year, it can be worth registering for VAT as soon as you open.

Something important to note here is if you have selfemployed therapists working for you in your salon, there are very specific and quite complex rules around what you should include in your turnover figures. I’d suggest you talk to a specialist salon accountant about it to make sure you understand those rules and get the best advice.

6 tips for making your VAT journey less stressful

1. Keep your bookkeeping up to date (or pay someone else to do it)

This way you’ll be able to monitor how close to the VAT threshold you are, your accountant will be able to advise you on the best VAT scheme, and with monthly reports you’ll know how much to put aside each month for VAT.

2. Remember your prices will need to increase

You will become 20% more expensive to your clients when you are registered for VAT. You can increase your prices in increments if you want to soften the blow to your clients. However, this means you pay the rest of the VAT from your profits.

3. Use a separate bank account for business transactions

This makes your bookkeeping much easier and ensures you don’t forget about any payments you have made.

4. Use salon software with a linked card payment machine

Having a linked card payment machine records accurately how clients have paid and will help you keep an accurate record of cash payments.

5. Get in the habit of asking for VAT receipts

Do this when you buy anything for the business. Upload all these receipts electronically to your accountancy software so you can reclaim every bit of VAT you have paid. This will reduce how much you have to pay to HMRC each quarter.

6. Choose an accountant with beauty industry experience

An accountant who has a full understanding and knowledge of the industry will offer the best advice for your business and can save you lots of time – and money – in the long run.

Melanie Beech is director of The Salon Expert Accountants, which specialises in helping salon owners to get their accounts organised and to earn more profit.