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Hairdresser-timeline of events clarification

trying to figure out tax and accounting situation for new business

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Two years ago hairdresser A running a salon as a freelancer in a converted garage.  Pays rent to family member-owner of garage. 

At the same time sets up a Ltd company with a view to finding proper premises.

No premises found, covid hits, company files dormant accounts in first year. Hairdresser A sells up all items in 'garage salon' and sits tight.

Ltd company takes on a lease one month before its second-year end but due to covid restrictions and fit-out time doesn't start to trade until its third year.

My questions:

1) There are no real records for the sale of the garage salon assets and unlikely any gains, so nothing to report here?

2) Is Limited company still dormant in year 2 as not trading, despite taking on the lease?  Everything has been self-funded through savings, family loans and bounceback loan.

3) Hairdresser A's new salon is all rent-a-chair based (with, to be fair, a pretty watertight agreement between salon and stylists, so only Ltd reports chair income not stylist income and is therefore under VAT threshold).  However, she considers herself still a freelancing stylist whilst also being sole director of the salon owning company.  Is this setup allowed?

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By David Gordon FCCA
17th Jun 2021 10:53

To the best of my experience
1)
A Ltd co is not "Dormant" if it engages in any transactions during the accounting period. Acquiring a lease is a transaction. A basic set of acs has to be prepared and submitted, both to HMRC and Co Hse.
2)
What the person thinks his or her tax status is, is irrelevant. It is a question of fact.
If she is shareholder and director, and is physically working in the company's premises, using the company's equipment, HMRC on the facts would be unlikely to regard her as anything but a director-employee.

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Replying to David Gordon FCCA:
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By Kacey2015
17th Jun 2021 11:35

Thanks for your response. The last point is going to be the trickiest one to explain to the client. You can't freelance for a company you are a director of, maybe there are some exceptions allowed but the enterprises here (owning and running a salon as director of Ltd company plus freelancing as a stylist) are so intertwined I hardly see how HMRC would allow it.

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By Duggimon
17th Jun 2021 14:34

I would probably change the company year end to the end of the month prior to signing the lease and file dormant accounts, provided there's not a compelling reason to leave the year end as is.

I have a client in a similar line of work who both runs a salon as Ltd co and freelances, however they freelance in entirely different premises with different clients and their own equipment. You have to have complete separation if you want to try and maintain it's not all one business, it doesn't sound like that's the case here.

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