Opening a Beauty Business: Taxes & Bookkeeping

February 19, 2016

By law, the Inland Revenue requires you to submit your profit or loss each year so that they can calculate how much tax you should pay.  It’s important to keep records of your spending and earnings for your own business understanding and in case HMRC requests to see them.

What Information Should I Record?

Money Coming In / Sales Ledger

You should record all money entering the business including your payments received from clients, beauty products sold, payments received at exhibitions and any rent money from salon space rented out.

Amounts Owed / Debt

If you have loans or credit cards, you’ll need to keep a record of the balances, new purchases and payments you make to the lenders.  Keep your credit cards statements and receipts as evidence.  If you’ve borrowed business finance from family or friends keep a record of your repayments.

Money Going Out / Purchase Ledger

Keeping an eye on your expenditure is essential in understanding your business.  Track your outgoings and ensure you keep all your receipts and invoices.  You need to know how much you are spending on each type of expense, as when you’re busy it’s easy to lose track of spending.
For example, as your salon gets busier you might start ordering stock more often, and could qualify for supplier discounts by ordering in bulk.

Salary Payments

Record all salary and National Insurance payments for staff and yourself.

How Do I Record The Information?

You can keep your salon business accounts organised with paper records or computer software.  HMRC doesn’t mind how you do it, so long as your business finances are legible and easy to understand.

Written / Paper

Although computer software is easily accessible for maintaining your accounts, some self-employed professionals prefer to record finances in a physical book.  If you handle a lot of petty cash (payments or purchases of small amounts) you might find it quicker to record them with a pen and paper.
If you record your salon payments in your bookings diary, make sure you copy them over to a separate accounts book, which includes all your incomings and outgoings.

Excel Spreadsheets

Small businesses with few employees probably won’t need to use advanced payroll features, and might opt for a spreadsheet instead.  You can group expenses into categories.  For example, if you use different suppliers, you can quickly group all your stock purchases together.  Or you can quickly calculate how much business you’ve generated from in-store promotions by recording the payments in the same column.

Bookkeeping Software

As your business grows, using bookkeeping software may save time.  You’ll be able to monitor sales and expenses more efficiently.  There are several types, some you’ll have to purchase, but some also provide a free version with limited features, available for download legally.

Some bookkeeping computer software allows you to connect with your online banking.  If you have different bank accounts, loans or credit cards, you can synchronise them together creating a ‘chart of accounts’.

You can record staff salaries and create accounts by supplier, allowing you to easily manage bills.  If you accept card payments in your salon, some software can be connected to your merchant account.

For larger jobs that require an invoice you can create, print and email customer invoices featuring your company logo.

When it’s time to file your tax return, you’ll be able to calculate your expenditure and income for the whole year in just a few clicks.

Hire a Bookkeeper / Accountant

If you don’t feel confident or are too busy to organise your own accounts, you could hire a bookkeeper or accountant.  It’s easy to confuse the two roles, as some of their duties overlap.  A bookkeeper will be concerned with the filing, organisation and recording of your financial activity, an accountant will offer in-depth examination and analysis.

Bookkeepers maintain daily accounting records, organise debits and credits, create invoices for customers, cheques for suppliers and handle the payroll.  You will still need to keep your receipts for purchases, but a bookkeeper will record them correctly, ensuring your accounts are up to date.  Many bookkeepers work on a freelance basis, and this may be more affordable for start-up businesses than hiring an accountant.

In addition to the tasks above, accountants may examine and analyse financial records and statements, calculate taxes, file tax returns, analyse business operations, ensure ledger entries are associated with the correct accounts and analyse budgets.  Large salon or spa chains with a high turnover may permanently employ an accountant to work onsite, the finance department will grow with the business.

What is a Tax Return?

You need to provide HMRC with all information about your taxable income.  This usually relates to tax year falling between 6th and 5th April.  They also need to know how much tax you have already paid.

The main form asks for details about your sales income, savings, investments and pensions, and is used to calculate how much tax you owe or are owed by the government.  If you’re self – employed this must be submitted by law.

You can choose to pay any tax you owe in a lump sum before the deadline in January, or you can set up direct debits or send cheques through the course of the year (these must be paid in advance of the deadline).

When completing your tax return, you’ll be able to claim tax deductions for losses in previous years.  If you make a loss in your first years of trading, it may be possible to offset these against profits in future years.

How Do I File a Tax Return?

You should always visit HMRC’s website before filing your tax return to read their latest guidelines, and if you’re submitting your first tax return you’ll need to create a login.  The process can take up to 10 days, so don’t leave it until the last minute! If you are new to self-employment, you must notify HMRC within three months of trading or you can face a fine.

The deadline for most businesses to submit their tax return online and pay any money they owe is 31st January. If you’ve submitted one before, you may receive a reminder beforehand.

For more information, please see HMRC’s help sheets.

Hiring & Paying Staff

If you’re employing staff for the first time you should always seek professional advice or refer to the Government’s website regarding employment law and regulations.

Before you take someone on, you might want to think about:

Their wage
You’ll need to pay at least the national Minimum Wage. If you’re paying a higher salary you need to decide how much. Check how much competitors pay their staff if you can. Paying a better wage is likely to encourage them to stay longer.

Legal right to work in the UK
Check if the candidate has the correct paperwork or passport declaring their right to work in the UK.

You must have employer’s liability insurance.

Offer Letter
Provide the candidate with a written statement of employment. You might choose to accompany this with a handbook outlining company policy, dress code and procedures.

Notify HMRC
Register as an employer up to four weeks before you pay the new team member.

If you need advice on finding new staff, read our article on recruiting new staff members.

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