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olivia
olivia Registered Posts: 13 New contributor 🐸
Hi all,

My friend is in the process of opening a hairdressers and would like to know what she needs to do. I am not yet in the position to advise her, please could someone explain what she needs to do and should she register for VAT ect. Any other information would be great.

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  • stefanboro
    stefanboro Registered Posts: 187 Dedicated contributor 🦉
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    Don't register for VAT until she meets the turnover threshold (currently £72,000 per annum, I believe). A voluntary registration would mean that she can claim expenses back but then she will have to raise her prices and can be less competitive.

    Unless she wants to be set up as a company then she will need to be registered as self-employed. You can do this through a CWF1 form from HMRC's website.

    If she plans on employing anyone she will need to be registered as an employer - ring HMRC new employer helpline and they will get you registered.

    Regarding setting up as a company, it's probably better to do this once your friend has had a bit more experience of runnnig a business if this is her first time. The services of an accountant should be sought right now if she wants to.

    Erm...... well, frankly, an accountant should probably be sought out anyway but beyond the basics I have highlighted good luck to your friend!
  • T.C.
    T.C. Registered, Tutor Posts: 1,448 Beyond epic contributor 🧙‍♂️
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    I agree with all that advice, but would add that she should take some advice on keeping records. In my experience hairdressers take alot of cash and "forget" to record it all.
  • payrollpro
    payrollpro Registered Posts: 427 Dedicated contributor 🦉
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    Olivia,

    Before your friend makes her decisions about VAT ask her to consider where she is going with her business and what her aspirations are.

    Stefanboro is absolutely right that if she is registered then her charges will immediately be 20% higher than her competitors, however she can take a bit of a hit on that because her costs will be lower simply by virtue of the VAT she can claim back on purchases.

    My problem is where such businesses grow to the point where registration is required and they then have to make a decision about how the VAT is funded. Most small businesses take the hit themselves and lose considerable income as a result because they are scared to pass on the additional charges to clients.

    Going registered from the start allows her to recover all the set up VAT charges and offset on going VAT but most of all her business, her clients and she herself never has to worry about registration and everyone is used to the full charge from the start.

    HMRC reports that one of the biggest areas for VAT penalty is the failure of businesses to register at the right time and with it being quite a complex decision i am not surprised.

    The other comment about it being a cash business is absolutely right too and HMRC has statistics which tells it just how much such businesses can expect to make and watch returns accordingly, so she is well advised to be honest from the start. Remember that paying cash into the bank cost dearly in charges as do any withdrawals in cash so most such businesses pay everything in cash, that way they save on charges and negotiate good deals for purchases. They also pay wages in cash as this both reduces the amount of cash to be paid in and avoids the need to draw cash out.

    That makes it doubly important to keep copious and scrupulous records so that she knows exactly what she's doing.

    Payrollpro
  • Dcollins
    Dcollins Registered Posts: 179 Dedicated contributor 🦉
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    I think there are special tax rules for hairdressers in certain circumstances, so she might want to look into that, or go to an accountant who knows about hairdressers.

    Don't have any hairdressers myself, so that's all I know.

    Point her in the direction of the businesslink website for general start-up advice.
  • T.C.
    T.C. Registered, Tutor Posts: 1,448 Beyond epic contributor 🧙‍♂️
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    "special tax rules for hairdressers" - I have not come across any??? Interested if there are. I have one hairdresser client.
  • Monsoon
    Monsoon Registered Posts: 4,071 Beyond epic contributor 🧙‍♂️
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    I think the only "special rules" are the Rent-a-chair thing.
    If that doesn't apply, then I think it's pretty much business as usual.
  • T.C.
    T.C. Registered, Tutor Posts: 1,448 Beyond epic contributor 🧙‍♂️
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    Thanks for that - thought I had missed something!
  • olivia
    olivia Registered Posts: 13 New contributor 🐸
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    Thank you all for taking the time to reply, I will pass on your advice.
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