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Hairdresser set-up advice

Hairdresser set-up advice

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Hi  if you're reading this, thanks for taking the time out.

Can 2 hairdressers go into business wit the following arrangement, or will all combined income need to be assessed for VAT purposes? Not quite sure the best setup to stay under the VAT threshold.

Hairdresser 1 and 2 combine partnership for a salon which all costs go through, and all income from renting out chairs - will likely net off to a loss or break even, and be under the VAT threshold.

Hairdresser 1 self assesses for 50% of above accounts, plus their variable and directly earnt income from cutting hair in the said salon.

Hairdresser 2 as per HD1 above.

This way, neither the partnership arrangement or the individuals will exceed the VAT threshold.

If they combine and form say a Ltd, all income will go through the limited co, and will well exceed the VAT threshold meaning their margin would be cut

They want to stay separate too as they both have very different work arrangements (part time vs full time, pluss different service offerings), so it is not purely about the avoidance of going VAT registered

Thanks again

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By qhas
26th Sep 2015 21:57

Ltd co
Why would they wish to incorporate ? Are there any advantages ?

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27th Sep 2015 11:57

No I guess not. Who cares if your hairdresser is Ltd or not!

Significant investment into the property at the outset and a likely loss in year 1 , plus the tax advantage of dividends was what raised the question from them.

But the issue of VAT exceeds that benefit. They should just self assess for the rental income from chairs plus their own services IMO, and swallow a bit of extra income taxation as oppose to having to pay over output tax also

 

Agree?

 

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By qhas
28th Sep 2015 20:37

Agreed with no reservations
When I enquired about advantages re incorporation I was referring to the standpoint of your clients NOT their clients

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29th Sep 2015 21:22

Thanks
Yeah I was giving the standpoint of my client, not the customer, sorry having re read it it sounds like it was from their POV

Thanks again

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29th Sep 2015 08:45

I have a client in the hairdressing business  , there set up is

 

1. The Shop is a limited company .

2. The 7 individuals including the directors rent chairs .

3.  This means that the only source of income is the rental (no vat if under threshold )

4. The directors , then declare there individual income via self assessment .

5. If there is a profit ,they just take dividends

 

 

 

  

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29th Sep 2015 21:25

My thoughts exactly
I had suggested this set up also, thanks for that.

I was unsure as to the director relationship or legalities re effectively paying "rent" to the business. I presume this is fine then?

I work in industry by day in an analytical role, my knowledge of standards is very limited.. Leads me to be paranoid!

Input is invaluable, thanks

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By Jakarmi
30th Sep 2015 01:01

Amazed

I'm amazed if the directors renting chairs ideas washes with the Revenue (pun intended).

I assume you enter the related party disclosure for each director and state it's nature?

 

 

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30th Sep 2015 08:26

they are not employees , the company sub contract to them , and yes there is .

 

 

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By qhas
30th Sep 2015 11:32

Tread carefully

timmypunk wrote:

they are not employees , the company sub contract to them , and yes there is .

 

 


A director cannot sub contract to his own company. You could be a sitting duck in the event of an attack by HMRC
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30th Sep 2015 22:08

To be honest I didn't set this up . The client all ready had this set up . From what I can gather is common in the hairdressing industry .

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30th Sep 2015 22:50

"A director cannot sub contract to his own company"

Why not ?

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By qhas
01st Oct 2015 13:21

Director subcontracting to his own company

zarathustra wrote:

Why not ?

The director of a company signs up with a third party to, say, repair a roof. He then sub contracts that job to HIMSELF. Assume for purposes of this case, that all conditions of status of employment are met  i.e contracts are in place to support claim of non-supervision (this would be difficult because he would be supervising himself), choose your own time to do the job, substitution, own tools,  et al - the whole caboodle.

Would the Revenue ever collect PAYE from such companies?

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By DMGbus
01st Oct 2015 08:29

No problem providing that...

Providing that all the correct documentation is in place I see no problem.

The directors are NOT subcontracting to/with their company, instead they are paying rent to their company.

The directors' customers are members of the puiblic rather than their company.

By "correct documentation" I mean that it is preferable to have things like:

Two signs on the wall of the salon clearly visible to customers:  sign one = stating full details of individuals providing hairdressing services, sign two = stating premises are provided by the Ltd Co with chairs sublet to individualsOther documentation as well established by the industry in respect of chair rental agreementsPublic liability insurance in directors own namesBank accounts in correct names for respective trades

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01st Oct 2015 15:08

LLP?

Did one of these for a health centre where the therapists had hugely differing earning potential.  Property rent and running expenses go through the LLP.  Equal weekly rent set designed to cover the running costs.  Each therapist was then treated as self employed and simply claimed a deduction for the rent payment.

External therapists were then encouraged to rent spare rooms which went into the LLP with the final profit/loss split equally.

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