As a self-employed hairdresser, understanding VAT (Value Added Tax) is essential for staying compliant with tax regulations and managing your finances effectively. While VAT may seem complex, once you break it down, it’s easier to handle. This guide will help you understand what VAT is, when you need to register for it, and how it impacts your business.
What is VAT?
VAT is a tax that businesses charge on the goods and services they provide. As a self-employed hairdresser, you may need to charge VAT on your services if your business turnover exceeds a certain threshold. The VAT you charge is paid to HMRC (Her Majesty’s Revenue and Customs) on a regular basis, typically quarterly or annually, depending on your VAT scheme.
When Do You Need to Register for VAT?
You must register for VAT if your turnover exceeds £85,000 in a 12-month period (known as the VAT threshold). If your turnover is below this amount, VAT registration is voluntary, but you may still choose to register if you think it will benefit your business.
Once you’re registered for VAT, you’ll need to charge VAT on your services and submit regular VAT returns to HMRC.
How Does VAT Affect Your Hairdressing Business?
When you’re VAT registered, you must add VAT to the services you provide, such as braiding, haircuts, colour treatments, and styling. The standard VAT rate in the UK is 20%. This means if you charge £50 for a haircut, you’ll add £10 in VAT, making the total charge £60.
However, you can also claim back VAT on the products and services you buy for your business, such as hair products, equipment, or salon supplies. This helps offset the VAT you charge, meaning you only pay the difference to HMRC.
VAT on Hairdressing Services: What You Need to Know
Most hairdressing services are subject to standard VAT rates, but there are some exceptions. For example, hairdressing treatments that involve personal care (like facials, for instance) may fall into a different VAT category. Make sure to research or ask a tax professional if you're unsure whether a service is VATable.
Should You Register for VAT?
If your business turnover is above the VAT threshold, you must register for VAT. But even if your turnover is under the threshold, you may choose to register voluntarily. Why? Registering for VAT gives you the benefit of claiming back VAT on your business purchases. This can be particularly useful if you’re purchasing expensive equipment or supplies, as it reduces your costs.
Another reason to voluntarily register is if you want your business to appear larger and more professional to potential clients, as they may see VAT registration as a sign of legitimacy.
The VAT Returns Process
Once you’re VAT registered, you must submit VAT returns to HMRC. This process involves summarising the VAT you’ve charged and the VAT you’ve paid on business expenses. There are two main methods for submitting VAT returns:
- Standard VAT Accounting: You report VAT on your sales and purchases as they happen, in real time.
- Cash Accounting Scheme: If your business is eligible, this allows you to account for VAT only when you’ve actually received payment for your services, which can help with cash flow.
Most self-employed hairdressers use standard VAT accounting, but cash accounting may be beneficial if your clients don’t always pay on time.
VAT doesn’t have to be daunting. Understanding when to register, how to charge it, and how to claim it back is key for staying compliant and managing your business finances efficiently. If you’re unsure about the VAT process, it’s always a good idea to seek advice from an accountant or tax professional.