T: 0131 341 4250|E: andrew@salonfrog.com
T: 0131 341 4250|E: andrew@salonfrog.com
If HMRC come a knocking, what’s the top things they’ll look at, and how (as a salon owner) are you protected?
We’ve put together a summary below on how Salonfrog’s Clients protect themselves with our help; and it is definitely worth making sure that you have the same controls in place:
| What HMRC will investigate:————————— | What HMRC is after:———————————— |
Your controls: How you protect yourself from HMRC——————————————————————- |
| 1. Income | Are you declaring all your income for tax? | i. All your Client sales go through a POS system, which salonfrog independently pulls in to your accounting software.
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| ii. Rental income from your self-employed are invoiced independently by Salonfrog.
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| iii. All income and expenditure is through your business bank account, which Salonfrog independently reconciles to your accounting system.
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| ————————— | ———————————— | ——————————————————————- |
| 2. Expenditure | Are you overstating your business allowable expenses? | v. Only business expenditure is paid for through your business bank account.
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| iv. All expenditure is supported by adequate paperwork (i.e. you scan every bill into hubdoc), which Salonfrog attaches to the expense in your accounting system.
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| iii. All income and expenditure is through your business bank account, which Salonfrog independently reconciles to your accounting system. | ||
| ————————— | ———————————— | ——————————————————————- |
| 3. Payroll | Are you reporting employee wages via RTI (PAYE)? |
vi. All your staff are paid via your payroll system, which Salonfrog independently runs for you; and reports to HMRC via RTI.
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| Are you paying them minimum wage? Big fines if not. |
vii. Staff wages are only paid from your business bank account.
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| Are you auto enrolling them when you should do? |
iii. All income and expenditure is through your business bank account, which Salonfrog independently reconciles to your accounting system.
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| Are tips being declared and tax paid on them? | xi. Both you, and salonfrog check minimum wages every pay period.
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| xii. Salonfrog independently assesses each employee, every month, to ensure they are correctly enrolled, and paying in the legal amount.
————— xiii. You have a Tips Policy, which all staff have signed. Further advice here: https://salonfrog.com/2021/09/29/tips-hmrc-getting-firmer-with-a-new-employment-bill/ |
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| ————————— | ———————————— | ——————————————————————- |
| 4. Self employed
(chair and space renters) |
Are your self employed actually employees? |
xi. Salonfrog specialises in understanding the salon rental business, the related legislation, and follow HMRC attacks against salons through the courts; then keep you up-to-date with the latest.
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| viii. You have up-to-date contracts with all your self employed; the terms of which are actually followed in real life (e.g. they can come and go as they please). You follow the NHBF/HMRC self employed guidance points (which Salonfrog has distrubuted) and can be found at: https://www.gov.uk/hmrc-internal-manuals/vat-taxable-person/vtaxper69100 ————— |
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| ii. Rental income from your self-employed are invoiced independently by Salonfrog. | ||
| ————————— | ———————————— | ——————————————————————- |
| 5.VAT | Are you under-reporting the VAT you owe? |
ix. Salonfrog ensures that the VAT relating to all income and expediture is correctly accounted within your accounting system; and that a VAT return is submitted on time to HMRC.
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| iii. All income and expenditure is through your business bank account, which Salonfrog independently reconciles to your accounting system.
————— |
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| iv. All expenditure is supported by adequate paperwork (i.e. you scan every bill into hubdoc) which Salonfrog attaches to the expense in your accounting system.
————— |
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| v. Only business expenditure is paid for through your business bank account. | ||
| ————————— | ———————————— | ——————————————————————- |
| 6.MTD VAT | Are you MTD compliant? | x. Salonfrog ensures that you are MTD compliant for VAT; especially that there is the required end-to-end digital link in your accounting systems; and that your VAT return is submitted via MTD approved software. |
| ————————— | ———————————— | ——————————————————————- |
| 7. Records | That you keep a copy of all your records for the minimum required time? |
There are different requirements for different records, for example: for a Ltd company, you must keep records for 6 years from the end of the last company financial year they relate to.
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| Salonfrog keeps all your records for the time you’re with us.
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We don’t keep your records from before you joined us though, so make sure you keep these safe.
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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.
Time limits
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.
Deliberate errors
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
Newcastle
NE98 1ZZ
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!
The very handy on-line HMRC calculator shows how much statutory minimum holiday each of your employees is due each year – in both days and hours. Vital for staying within the law!
But it’s suddenly disappeared!
The reason is simple. There have been a number of court cases recently, which if you input the details into the calculator, it might not generate the correct answer!
So work is on-going by HMRC to fix it and hopefully we’ll see it up again soon.
This short article takes you through the main rules but remember: it doesn’t have to be a Christmas party. Salons are very busy in December, so you could have a January party instead to say thanks to your staff.
This is what they say:
To be allowable, the party must be all the following:
Remain below the £150 limit and there is no additional tax or national insurance to pay; and the whole expense is allowable against your corporation tax for the year.
So let’s take a look at each of these requirements:
The £150 limit includes: The cost of the function (including VAT), the cost of transport (e.g. taxi) and overnight accommodation, if either of these are provided.
Divide this total cost by the number of people (including non-employees) who attend to give you the cost per head.
HMRC say that “annual” is something that happens once a year on a recurring basis (such as a Christmas party or summer barbeque). So it follows from this that a one-off event, for example a party to celebrate your salon being open 2 years , cannot be an annual party or function. So in this case, the expense would not be allowed.
Holding a Christmas party can be a great way to show appreciation for your team and if you keep within the HMRC criteria, there’s a lot less tax to pay.
As an alternative to the staff party, there is also something called ‘Trivial Benefits’ if you want to spend £50 or less on each employee. See here: Trivial Benefits | a tax efficient way to thank your staff – and you!
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Unless you want to get arrested (or you’re in a naturist resort) everyone needs to wear something in the salon. But can you get the tax back on what you wear for work? And if so, how?
The rest of this article tells you more.
This is what they say:
For an expense to be allowable for tax, it has to be incurred “wholly and exclusively” in the salon’s business.
HMRC go on to say that: in the same way everyone has to “eat to live”, so similarly everyone needs to wear something for “warmth and decency” (whether they are at work or not).
In other words, you’re going to cover yourself up whether you go to work or not, so the cost of the clothes you wear to work cannot pass the “wholly and exclusively” test.
And to HMRC, it does not matter whether you’ve bought your clothes only for work (and would never dream of wearing them to the champagne bar), what counts is whether you could.
Having said that, HMRC do allow 3 specific types of clothing:
So if your staff are required to wear a ‘uniform’ then you can most likely get the tax back, but read on…
By Logo’d, we’re talking about clothing that has a salon logo on it.
HMRC are a quite vague in this area but do say that: “fixing a permanent and conspicuous badge to what would otherwise be ordinary clothing may be enough to make it a uniform, but each case must be considered on its merits.” In particular HMRC will check that:
The essential test is whether your employee would readily be recognised as wearing a uniform by a person in the street. A detachable badge for example is not sufficient for this.
So if you do get your staff to wear t-shirts or fleeces in the salon, the safest option is to get them permanently and conspicuously logo’d.
If your clothing is allowable, so then is the cost of washing and ironing it!
If the Salon provides the allowable clothing for its staff, then the cost (of the clothes and washing them) is recorded in its accounts and reduces the amount of profit that it pays corporation tax on.
If the employees are required to pay for their own allowable clothes, they can include this cost in their self assessment return each year, or contact HMRC to have their PAYE tax code amended to reduce the tax they pay each month.
Additionally, if the employee is required to wash their uniform, they are able to reclaim a standard flat rate allowance of £60 per year in the same way!
‘Ordinary’ clothing is not allowed as a business expense and so you cannot claim the tax back. However, certain ‘business’ clothing (for example uniforms, protective clothing and logo’d t-shirts) may well be allowable, as is the cost of washing them.
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