Rent a Chair self employed barbers and VAT

Rent a Chair self employed barbers and VAT

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I have a client that is vat registered and he is questioning to implement a chair rental structure but instead of a flat-rate rent being paid, 40 % of gross takings is paid as the rent?  This is a structure used by many salons instead of a flat rate rent scheme.

Now my understanding is that, By operating a chair rental structure, the gross takings  would not all be subject to VAT (as my client  would effectively be collecting 40% of this as an 'agent' on behalf of the stylist/barber) - only the amount received by the salon as rent would be subject to VAT as it  is all attributable to self-employed barbers

If I record all the sales which I do on VT Plus inclusive vat and then I pay the self employed for their service and retail commissions and then I have to charge for the rent of chair

what will the double entry and math be on this I am very confused ??

For clarity sake I will give an example my client has a self employed Barber that

is  renting a chair at a rate of 85.15 p/day.
 
If he does 10 clients at full price, sales will be 260.00 gross, 216.67 net of VAT
 
 
 

Pls help

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By cparker87
27th Nov 2013 23:41

Seperate the two transactions that are occuring.

The Barber makes £240 in a Day. He has an agreement to pay 40% of his Gross Takings to the Shop Owner.

So he calculates that £96 is due to the Shop Owner for that day's trade. Great.

Your Client (the Shop Owner) is VAT Registered and following recent legislation must charge VAT on the rent of this space in his Shop. I think the key part of the puzzle you are missing is what the detail is in the agreement. Does it state 40% of Gross Takings "INCLUDING VAT" or "EXCLUDING VAT". I'll let you figure out the rest of that part.

Regarding the books your keeping, you seem to suggest that you are taking account of the total sales (£240 in our above example). That's potentially a dangerous game to play by virtue of it giving the arrangement more of t he character of employment than self-employment. The ideal would be to only have entries for the Commission to which your Client is entitled.

Alternatively, if you feel the need to account for the Barbers takings and effectively "pay out" the Barber for each day, then your entries would be (using my example)

 

Dr Cash 240

 Cr Funds held as Agent 144

 Cr Sales from Rent-a-Chair 80

 Cr VAT on Rent a Chair (if Inclusive arrangement) 16

To recognise the days takings held on account and the rentachair %

You'd then pay the Barber his £144, (Cr Cash, Dr Funds held as Agent) or whatever it was for say, the week period that you were closing down etc.

 

In summary, whether the Barber is VAT Registered or not is simply not your Client's concern and the transactions between the Barber and his Customers are definitely not your concern - who knows, he might be registered for VAT after all - but that is his problem - that's the whole idea of the arrangement. Your Client must simply set up an agreement at an appropriate rate and negotiate if his percentage charge is including or excluding VAT. Hope that helps.

 

 

 

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Stepurhan
By stepurhan
28th Nov 2013 08:07

Recent thread

There have been two recent threads of rent a chair and VAT. This is the most recent and I posted a link to the first in it.

https://www.accountingweb.co.uk/anyanswers/question/hairdressers-vat-rental-chair

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