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Hairdresser's accounts : I am having a bad-hair day.

Hairdresser ... self-employed works in a (vat registered) salon and says she receives 50% of the takings for her work.

The only paperwork she managed to get from the salon was an invoice for the chair, for the whole tax year.

This invoice charged her VAT on the chair.

She says the amount shown on the invoice was the same as her earnings (50-50 split).

Would the Gross or net represent her takings?

If a customer asked for a vat receipt, would there only be vat on the salon's 50%?

The invoice for the chair also puzzles me.

Do I double the invoice value to get her turnover then deduct the invoice as expenses?

If the taking were split at the till, should she have received the vat invoice?

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Is the hairdresser...

..vat registered? Or just the salon?

Hint: it makes a difference.

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Hairdresser not vat registered

Salon registered, hairdresser not registered.

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If the hairdresser is not vat registered then they can not issue a vat receipt.

The calculation is likely to be as follows. The hairdresser will have a rent-a-chair agreement, which you should see.

 

Income = gross vat invoice x 2

expense = gross vat invoice

profit = income - expense

 

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Trying to follow this too

zebaa wrote:

If the hairdresser is not vat registered then they can not issue a vat receipt.

The calculation is likely to be as follows. The hairdresser will have a rent-a-chair agreement, which you should see.

 

Income = gross vat invoice x 2

expense = gross vat invoice

profit = income - expense

 

Not got a hairdresser client, but who knows what the future might bring!

If she receives, say, £100 and this is after a deduction of £20, in the circumstances you describe I would have said she had a net turnover of £120 (i.e. no VAT) and a gross expense of £20 (i.e. inc. VAT).

If she registered for VAT (the hairdresser) it would be come £120 gross (so £100 net).

The 'gross VAT invoice x 2' bit is confusing me...

Have I erred?

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Examples

Example : The customer pays £120 at the till.

Scenario (A)
The total takings are split at the till, £60 for hairdresser and £60 (£50+£10 vat) for the salon.
The customer pays £120, and requests a VAT receipt. Will the VAT be only £10?
The cost of the chair should not come into the hairdresser's calculation.
However, the hairdresser has an invoice for the chair, which includes vat.

Scenario (B)
The total takings are the hairdresser's turnover, and the salon charges her for the chair.
The invoice then makes sense.
However, the hairdresser's bankings are only 50% of the till price. So the turnover does not physically pass through the hairdresser's hands.

 

 

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Take care with rent a chair

ugdiv wrote:

Scenario (B)
The total takings are the hairdresser's turnover, and the salon charges her for the chair.
The invoice then makes sense.
However, the hairdresser's bankings are only 50% of the till price. So the turnover does not physically pass through the hairdresser's hands.

Not a good situation to have. Shouldn't she keep her takings separate to those of the salon?

EDIT: just checked, and the salon are operating the rent-a-chair correctly. I suppose the amount charged by the salon is a negotiable agreement with the individual hairdresser.

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i'm confused now.

the main supply of the haircut will depend on who is in business as a hairdresser, i.e. who does haircut fee belong to? who carried out the service?

the second supply of the chair by the landlord to the hairdresser is vatable.

 

 

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Okay I will try again

Hairdresser takes £100

She keeps £50 and pays £50 to Salon. Hairdresser is NOT vat registered so no vat implications.

Salon issues hairdresser with vat invoice £ 41.66 chair rent & £8.34 vat.

Hairdressers profit (on which tax may be payable) is £50.

I suspect the salon should issue a vat invoice at 3 month periods max. but then the salon is not the client, so lets not get bogged down with side issues.

The hairdressers turnover, to clear up the point above, is the total charged.

Any questions?

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All sorts of perms.

This type of agreement has all sorts of permutations 50/50, 60/40, 40/60, day fee + %, supply-your-own-stuff + fixed rate (per customer) and so on. One other point that occurs to me concerning hairdressers, in regard to their accounts, is tips.  

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Thank you for all your replies

Thanks for all your replies.

As the split was 50/50 I doubled the gross vat invoice amount for takings, then deducted the gross invoice as premises costs.

Once it is explained it becomes really obvious!

So thanks again.

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I don't understand

"She says the amount shown on the invoice was the same as her earnings (50-50 split)." What does this mean? Is her "earnings" the gross or net of the amount shown on the invoice? If she's supposed to receive 50% of her takings then I would expect that to be the net of VAT, they deduct the chair (with VAT added) and then pay her the rest. I've not thought this through due to 31 January looming but I think it makes sense.

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@ Peter

In answer to your question 'net or gross ? ' see my reply earlier. It seems the vat is confusing some, but all you have to remember is who is vat registered and who not. Again, as I've said ( first post ).

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It is still not clear

" but all you have to remember is who is vat registered and who not." I can remember that thanks but how are you treating the amount received? Is it all the hairdressers and then the salon invoices the hairdresser or is the salon charging the customer and then paying 50% to the hairdresser?

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zebaa sorry I confused you with the OP

but although you are making sense that doesn't mean that is what is happening

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How about this

Customer pays £100 for a haircut.

If we assume this is turnover of the hair stylist (not turnover of the shop) there is no VAT involved (as stylist not VAT registered).  NB So if customer asks for a VAT invoice he / she cannot have one as he / she has paid no VAT.

Chair rent is £50 (invoice from shop to stylist for £50 inclusive of VAT at standard rate).

Stylist's accounts show sales £100, chair rent £50, profit £50.

So, to answer the OP's question, to calculate the stylist's gross income double the VAT inclusive chair rent, then deduct the VAT inclusive chair rent as an expense.

Simples!

RM

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Are the hairdressers blonde.
Surely the rent a chair scheme is exactly that. You pay £100 per week or whatever to rent a chair in the salon and you get to keep all the revenue generated from that chair. The £100 covers your contribution towards costs of the shop ie electric, gas, young bird who sweeps floor etc. The shop owners income is the money from the shop plus the rent from the chair. If its done any other way ie the renter receives a share of overall takings then surely this a partnership and not a rent a chair scheme. If the owner is declaring all income for VAT she is probably overpaying the vat on the income generated by the renter. In fact unless it is a very successful hairdressers she may not even need to register for VAT if she excludes the takings made by the renter. If they split takings 50/50 who pays the premises costs as if they are suffered by the owner then the renter actually makes more than the shop owner. Or have I missed the point.

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Point missed - no partnership

" If its done any other way ie the renter receives a share of overall takings then surely this a partnership and not a rent a chair scheme." No, because the salon doesn't have the expenses regarding this particular chair. The deal is that the hairdresser pays rent for the chair plus a share of total sales of the chair.

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