Here’s a common set up:
A chair renter finishes the cut of one of their clients; then takes her up to the reception desk, where she lets the Salon’s Front of House take the clients payment through the Salon’s own POS and merchant card reader.
How will HMRC view this? Will this sale belong to the self employed renter, or the salon for VAT and tax purposes?
Here’s the answer
There’s a bit of a misconception in our industry that a salon cannot take the payment in this way.
However, this misconception is wrong.
HMRC would look at the whole arrangement between the Salon and its self employed renters (both from the point of view of the contract between them and what is happening in reality). HMRC would do this by going through an agreement that the NHBF and HMRC have in place; as well as using the HMRC CEST tool to determine 2 things:
In our specific example, the NHBF/HMRC agreement includes the following:
Section 4, Money
If your salon does have this arrangement in place, it should ensure it is set up 100% correctly to keep HMRC happy. Who takes the money is just one small part of it!
We get asked this a lot by Clients and non-Clients and the answer is within the depths of the new MTD for VAT legislation.
In short the answer is yes – you can – but there are some limitations (see below) – and we think you should only do this in limited circumstances. Using a VAT invoice is always the better option if you can since (for example) it helps with later analysis of costs and stops duplication of bills.
Here’s the exact wording from HMRC’s VAT Notice 700/22: Making Tax Digital for VAT
“Some businesses record the value of each supply from a supplier statement instead of individual invoices. This may occur particularly where a business receives a large number of invoices from the same source. In HMRC’s view, it is best practice to record digitally the individual supplies as this means less risk of invoices either being missed completely or being entered twice – once as an invoice, and once as part of the statement. There is also less risk of the wrong rate of VAT being applied.
On the other hand, HMRC accepts there may be additional work for a business in capturing individual supplies digitally and this in itself could lead to data entry errors. Therefore, HMRC can accept the recording of totals from a supplier statement where all the supplies on the statement relate to the same VAT period and the total VAT charged at each rate is shown. If you choose to do this, you must also cross reference all supplies on the supplier statement to invoices received, but this can be done outside of your digital records.”
The following rule has the force of law:
Where a supplier issues a statement for a period you may record the totals from the supplier statement (rather than the individual invoices) provided all supplies on the statement are to be included on the same return and the total VAT charged at each rate is shown.
If you discover that one of your VAT returns needs to be corrected, we look at how to do this; and if you can expect any fines.
The time limit to correct a VAT return is 4 years from the end of the VAT accounting period which it covers.
Having said that, you should sort it out as early as possible to minimise the risks of penalties and interest.
If the error was deliberate, you must notify HMRC in writing or using Form VAT652.
Errors under £10,000
If the net error is less than £10,000, you can simply adjust it through your next VAT return.
However, this does not constitute a “notification of the error” to HMRC and so does not necessarily avoid penalties. If the error was as a result of careless behaviour, HMRC are still entitled to charge penalties in the event that they discover it at a later date, even if it has already been adjusted on your next VAT return.
HMRC advise that including the adjustment on the return does not constitute a disclosure. This means that without also completing a VAT652 Form or notifying HMRC in writing, unprompted penalties could still be charged.
HMRC (as you would expect) advise that all amendments should be notified to them to gain the maximum reduction of any penalty for careless errors.
Errors over £10,000
Contact us for advice!
Adjustments which are not errors
Some adjustments are not errors, and these include:
It is only if the original adjustment under these schemes was incorrect that you would complete an error notification.
Where to send the correction notifications
The notifications should be made in writing, or using the VAT652 Form. They should be sent to:
HM Revenue & Customs
VAT Error Correction Team – SO864
Salonfrog’s VAT service
Mistakes happen. That’s life. And for Clients who have our VAT service, we take care of all this for you so you can get on with what you do best!
This has been the biggest change we’ve ever seen to HMRC reporting and has caused numerous headaches to accountants throughout the UK. And with more changes still to come, we continue to follow the progress of HMRC’s numerous updates on the subject.
Still, we’re celebrating this achievement!
If you want to know more about MTD, have a look here: