The UK government is getting ready to make changes to the way businesses track and pay VAT.
From April 2019, every UK business with a turnover of over £85,000 per year will have to start keeping their VAT records in digital form. Most salons will fall into this earning bracket, so it’s important that you start making plans now!
Keeping track of tax might be the more boring aspect of running your own business, but it’s really important that you stay compliant.
VAT (or value-added tax) is a tax on consumer spending. Every time a consumer spends money on goods or services from a business, that business is responsible for collecting VAT and paying this to the UK government (HMRC).
VAT is currently set at 20%. Any business with earnings over £85,000 in a 12-month period has to be registered for VAT. It’s also possible to register for VAT if your business earns less than this. There are benefits to registering for VAT, so even if you aren’t quite at the earnings threshold, it can still help to save you money.
This is because all businesses that are VAT registered can adjust their VAT bill based on how much VAT they have paid to suppliers. When you purchase items for your salon, you will pay VAT on these items. This is known as your input tax. The VAT that customers pay you is known as output tax.
You VAT bill is calculated quarterly using the following formula.
Your output tax (VAT paid by your customers)
– Minus your input tax (VAT you paid to suppliers)
= The amount you owe to HMRC
Keeping monthly records is important as VAT is paid quarterly. This means that you could end up paying more VAT than you need to if you do not keep track of when you were paid and when you paid suppliers.
You can also be landed with a big penalty if HMRC thinks that you are being dishonest with your VAT returns – and you definitely don’t want that!
Salon Iris is about so much more than appointment booking and client management.
There are 200 simple-to-use salon sales reports which will help you to understand where you are financially. This means that if you’re just starting out and you aren’t sure when you’ll hit the VAT threshold, you can use the forecast reporting to predict this. Bonus!
This can help you avoid being landed with an unexpected VAT bill just as you are gaining momentum.
And once you hit that threshold, Salon Iris will be there to help you keep track of your VAT. Everything is calculated automatically on the platform. So you can focus on doing what you love – running an incredible salon!
Making Tax Digital is supposed to help make things easier, but if you’ve already got your own systems in place, it can be annoying to have to switch.
The important thing to remember is that you need to keep digital records of everything.
So if you’ve been doing paper books for a while, now would be a great time to switch to a cloud-based salon software.
By using software to manage your salon, you can automatically calculate and submit your VAT returns and never have to worry about miscalculations or missed deadlines.
If you’re ready to make the switch, sign up for your free demo. You’ll be able to try out all of the features and see how Salon Iris can help you to grow your salon.