Male grooming salons and VAT
You will have to register for VAT if your taxable sales are likely to be above the current VAT threshold. You will then have to charge VAT on your sales - this is known as 'output tax'. You will be able to reclaim any VAT you pay on purchases - this is known as 'input tax'.
Every quarter you will pay HM Revenue & Customs (HMRC) the difference between:
- the output tax you have charged, and
- the input tax you have paid on your purchases of goods, materials and so on
Nearly all businesses have to pay their VAT bill electronically - for example by direct debit or online banking. HMRC allows you some time at the end of each quarter before you have to pay the VAT due. So, for example, the VAT due on sales made in months one, two and three would be paid at the end of month four. Your VAT return will show your payment deadline date.
Businesses that are having trouble making their VAT payments, or are worried that future payments will cause them problems, can ask for help from the HMRC Business Payment Support Service. If your business needs this financial assistance to tide it over, HMRC will look at your situation and discuss temporary options that could help out. These could include letting you make payments over a longer period and waiving late payment surcharges. To discuss payment problems with HMRC you can call the Business Payment Support Service Helpline on 0300 200 3835.
How much VAT is payable?
Most male grooming salon services and retail sales are standard rated for VAT, meaning that they have the standard rate of VAT added to the selling price. But the reduced rate of VAT applies to contraceptives such as condoms and no VAT is due on any gratuity or tip that a customer gives you at their own discretion.
The practice of 'renting' a chair in a salon can give rise to complicated VAT issues. HMRC has recently tightened up on the VAT treatment of chair rentals - the charge a therapist pays to the salon is now nearly always standard rated. It is strongly recommended that anyone interested in entering into a 'chair renting' agreement should first get advice from an accountant or other professional.
Your market research will have helped you to estimate your sales income every month. Now estimate approximately how much VAT you will pay to HMRC every quarter.
Contact the VAT Helpline on 0300 200 3700 to request further guidance and helpful leaflets including VAT Notice 700/1, Should I be Registered for VAT? You can also download VAT information publications from the Gov.uk website.
Making Tax Digital (MTD) for VAT
Under HMRC's Making Tax Digital initiative, VAT-registered businesses with taxable turnover above the VAT threshold must keep records digitally and use special software to submit their VAT returns. You can find out more about MTD on the Gov.uk website.
Alternative flat rate scheme
You might be interested in an optional flat rate scheme (FRS) for eligible small businesses. Under this scheme you continue to issue tax invoices to VAT registered customers, but the VAT payable every quarter is calculated as a percentage of your VAT-inclusive turnover. You apply the appropriate flat rate percentage for your type of business. This scheme cannot be used with the retail schemes, the margin scheme for secondhand goods or the cash accounting scheme. You can find full details of the FRS, who can use it, and the flat rate percentages in VAT Notice 733, Flat rate scheme for small businesses. It will help you to decide whether or not the scheme is suitable for you.