Turnover on a tax return

Turnover on a tax return

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I am helping a friend do a her tax return as a favour and i have a quick question i hope someone can clarify.

She works in a hair salon, and rents the chair and space from the salon.

At the end of each month the salon sends her an invoice for 60% of her takings in the month. The salon collects all the money on her behalf, ie customers pay the salon.

Lets say she does £100 in a month of hair cuts
The salon will invoice her £60
The salon then pay her £40

What do i put on her tax return?

Income £100
expense £60
Net income £40

or just income £40

I would think that because the clients are paying the salon that she cant say it is her income. I would argue the collection of the payments via the salon is part of the rental service for her, so her income would be only £40.

I know the result is the same, she pays tax on the £40, but i don't want to seem i am inflating her income and expenses. 

Thanks in advance

Harp

Replies (13)

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Out of my mind
By runningmate
24th May 2015 13:30

Gross

To quote your question "the salon sends her an invoice for 60% of her takings".  So her takings are £100 & that figure should be on her tax return.

RM

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By harpsong
24th May 2015 13:53

But she doesn't take the £100

But she doesn't take the £100, the salon does.

To clarify, the only thing she recievves is £40 into her bank and and invoice for £60

H

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By johngroganjga
24th May 2015 13:56

The salon is collecting the £100 on her behalf. If it was the salon's money it would not be invoicing her for its chair money.

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By harpsong
24th May 2015 14:02

so accordingly the salon will only record a £60 income in their accounts.

They wont record a £100 income and £40 expense. .

I haven't seen the receipts given to clients but they would no doubt have the salons details on it

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RLI
By lionofludesch
24th May 2015 14:24

Agreement

You need to look at what the agreement says.

It's a technical point as far as the tax return goes, in that the tax isn't affected.  But there'll be a big effect if she ever grows enough to pay VAT.

If the agreement doesn't help - who does the customer think she's contracting with ?  The salon or your friend ?

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By harpsong
24th May 2015 14:38

I am still waiting on the agreement. 

I already thought of the VAT consequences, and she is still a long way off having to register.

But i think it is best to put the £100 income and £60 expense. The customer would probably think they are contracting with the salon though. 

As you say above it is only a technical point regarding the tax. If HMRC looked at it and found they prefer for it to be done the other way, i don't think they would make an issue of it, would they?

In regards to VAT it would make her exceed the compulsory limit sooner rather than later so it should not be an issue there. (i don't think she will ever break the limit anyway, at least not under this current agreement, with this salon)

Thanks all for the help. I hope in years to come i will be the one providing the answers :)

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Out of my mind
By runningmate
24th May 2015 14:55

If she were invoicing the salon £40 for her work then her turnover would be the £40.  But if the salon is invoicing her £60 then her turnover must be £100.

RM

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By Manchester_man
24th May 2015 21:55

The salon imo have set it up that way so as not to hit the vat registration threshold.

Because if the way it has been set up, as previous posters say, your friend should record the 100 as takings and the 60 as a cost.

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Accountants Northampton
By Shamrock
25th May 2015 09:08

I think I read somewhere
That your clients rent a chair turnover will form part of the VAT related turnover for the salon she works for. As in it will count towards there £82k VAT threshold.

I'd say count the £100 as the turnover minus the £60 expenses on the grounds that her margins will look more normal which will reduce the chance of an enquiry.

It might be worth talking to your client about the risks of rent a chair being considered disguised employment and review how safe her contract is.

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By petersaxton
25th May 2015 13:19

The work she's doing

She's doing work worth £100 so her turnover is £100.

 

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Replying to lionofludesch:
RLI
By lionofludesch
25th May 2015 18:47

Hmmmm

petersaxton wrote:

She's doing work worth £100 so her turnover is £100.

Hmmm - not sure that follows.  First, we have to establish for whom she is working.

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By petersaxton
25th May 2015 20:15

working

what is her work?

cutting hair, etc.

who's hair is she cutting?

customer

how much does she charge the customer?

£100

 

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RLI
By lionofludesch
26th May 2015 14:51

Whose Customer ?

If the salon holds out to the customer that she's a customer of the salon, maybe not.

Maybe she charges the customer nothing and charges the salon £40.

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