Self-Employed Hairdressers – What expenses can you claim?
A guide to expenses for Self-Employed hairdressers
Many hairdressers are at a loss of what expenses they can claim for tax purposes. They often wonder if there are any special tax and accounting rules when it comes to their field. What are the rules when it comes to VAT for hairdressers?
The following table gives hairdressers a solid idea as to what they can claim for tax purposes.
Cost of goods bought for resale or goods used
- Materials which are consumed in your business or are sold to customers. Examples of materials include shampoo, mousse, dyes, and colours.
- All consumable stock including towels, gowns, brushes, mesh and so on.
- Self-employed hairdressers who take any materials from business stock for self-use or consumption will need to be treated as a sale at market value. There are VAT implications on a case by case basis.
Wages, salaries and other costs pertaining to staff
- An employment status check must be performed on any staff that you hire to see if they fall into one of two categories, employees or self-employed.
- Any accountants for hairdressers will elaborate, however, the gist of it is that wages, salaries, and fees paid to employees are tax-deductible.
- Operating Pay As You Earn and deducting tax and National Insurance is a must if your staff are employees.
- Employers who provide Benefits in Kind will be delighted to know that the cost of these benefits, as well as any Class 1A NIC, will be tax-deductible.
- Employers who pay employer’s National Insurance might be in a position to claim the National Insurance employer’s allowance back through their payroll.
- Auto-enrolment pensions are mandatory for employers.
Cars, vans and travel expenses
- Costs associated with business travel are tax deductible.
- Regular work which requires a home to work travel does not receive a tax deduction.
- Businesses claiming flat or actual costs will need to look into the type of costs that can be claimed.
- Costs that can be claimed vary depending on if you drive a van or a car.
- When claiming fixed rate deductions, capital allowances cannot be claimed.
- Adjustments need to be made for private use when claiming capital allowances.
- Accountants for hairdressers would be a useful hire in this scenario.
- Fines such as for speeding, parking and congestion are not tax deductible.
- Situations, where a meal or drink is bought throughout business travel, is tax deductible. This is also known as subsistence costs.
- When business travel is involved, accommodation costs are also allowable.
Repairs and maintenance of property and equipment
- Small items such as the following can be claimed as expenses. Scissors, rollers, electric razors, straighteners, towels, and gowns for customers, hand hairdryers, hairbrushes, and combs.
- Any repair costs for equipment can also be claimed as expenses.
Phone, fax, stationery and other office costs
- Business usage of home and office phone.
- Cost of diary/appointment book.
- Any pens, paper, ink, stamps and so on which are used in the business.
- Trade magazines/periodicals which are used to keep you up to date.
- Magazines which would only be used by customers while waiting for an appointment as well as during an appointment.
- Any software used for the business.
Advertising and business entertainment costs
- Advertisements on the internet or in papers.
- Any costs incurred while running a website.
Interest on banks and other loans
- Cost of financing working capital or the purchase of business equipment.
Bank, credit card and other financial charges
- Accountants for hairdressers usually suggest having a separate bank account for the business. Bank charges and credit card charges can be claimed for business purposes.
Accountancy, legal and other professional
- Trade associations and professional body membership fees and subscriptions.
Other business expenses
- Protective clothing inclusive of gloves and aprons.
- The laundry costs faced by self-employed hairdressers for towels, protective clothing, and uniforms.
- The cost of a uniform where a self-employed hairdresser has to wear one or where there’s a logo. Ordinary clothing cannot be claimed.
- Self-employed hairdressers need to keep their skills up to date. Training costs can be claimed but only for keeping skills up to date. Any cost which is incurred for training a new skill or obtaining a new qualification is a capital cost.
Trading and property allowance
- If all of the above costs result in less than £1,000, self-employed hairdressers can claim a trading allowance instead which would result in a fixed £1,000 deduction from profits. This is yet another situation where accountants for hairdressers turns out to be a useful investment.
- Self-employed hairdressing services are treated as standard-rated supplies.
- It is mandatory to register for VAT if your taxable supplies exceed the VAT Registration threshold in a 12-month rolling period.
- Voluntary registration for VAT is encouraged.
- If you’re not a Limited Cost Trader, the Flat Rate Scheme specifies that the percentage for hairdressing or other beauty treatment services is 13%.
VAT and chair rents
- The supply of chairs to other hairdressers for chair rental payments had the potential to be considered as not part of hairdressing supplies until 1st October 2012. This resulted in it having the potential to be exempt from VAT.
- From and post 1st October 2012, chair rents have been specified to be standard rated.
VAT – Who is making the supply?
- The National Federation of Hairdressers (NFH) and HMRC have agreed on guidelines for hairdressers and VAT. These guidelines will be used by HMRC to decide whether a person is providing services to a salon as an employee, self-employed or directly to the customer.
VAT – What is the supply?
In situations where a salon is supplying hairdressing services, there are three ways as to how it might be subject to VAT.
- Stylists are employees – In this situation, the salon provides hairdressing services to their customers and should declare VAT on the gross value.
- Stylists are self-employed and also provide their services to the salon – In this situation, the salon receives the gross payment for hairdressing services and must make it a priority to account for VAT on the total value.
- Stylists are self-employed and contract directly with customers – In this situation, the stylist receives payment of the gross amount. The salon charges VAT on the fee.
The key takeaway here is the wording or agreements as well as the arrangements that have been made.
Clear House Accountants are specialists Accountants in London who specialise in working with Hairdressing businesses in the UK, we have worked on creating processes and solutions to make sure that Self-Employed Hairdressers can save the maximum amount of tax while focussing on growing their business.
You might also want to read: