Self employed hairdresser
Discussion
My girlfriend has decided to go self employed and rent a chair within a salon.
As my knowledge is limited, I'm struggling to give her the best advice on whether to set up as a sole trader or a limited company. A few friends with minimal experience recommend ltd but without asking for any details of the business.
Estimated revenue will be £50-70k a year with fixed chair costs of £12480 and other costs of approx £5-7k.
Eventually planning on opening her own salon within 5 years.
We own our own home but don't expect the business to have any debt.
As my knowledge is limited, I'm struggling to give her the best advice on whether to set up as a sole trader or a limited company. A few friends with minimal experience recommend ltd but without asking for any details of the business.
Estimated revenue will be £50-70k a year with fixed chair costs of £12480 and other costs of approx £5-7k.
Eventually planning on opening her own salon within 5 years.
We own our own home but don't expect the business to have any debt.
What my wife does - though mobile rather than fixed to a salon.
Either or really but I would suggest sole trader.
The reason is that her only risk is that she doesn't cover enough to cover the chair rental and maybe carry some stock risk - both of which I would suspect would not be a bank breaker if it went wrong. She can still get the required insurances if she stabs a client in the back of the neck or mucks their hair up.
Sole trading will keep the accounting simple and be cheaper on the overheads. But she should check the terms with the salon as they may demand she be set up as a limited company.
On the latter point, get her to check the status of her clients. I know some salons can be a bit sharp on this - claiming any customer who comes in is 'their' customer.
As and when she moves into getting her own salon, then a LTD company is the way to go.
Wish her good luck!
Either or really but I would suggest sole trader.
The reason is that her only risk is that she doesn't cover enough to cover the chair rental and maybe carry some stock risk - both of which I would suspect would not be a bank breaker if it went wrong. She can still get the required insurances if she stabs a client in the back of the neck or mucks their hair up.
Sole trading will keep the accounting simple and be cheaper on the overheads. But she should check the terms with the salon as they may demand she be set up as a limited company.
On the latter point, get her to check the status of her clients. I know some salons can be a bit sharp on this - claiming any customer who comes in is 'their' customer.
As and when she moves into getting her own salon, then a LTD company is the way to go.
Wish her good luck!
How does she intend to pay herself? It would seem that she will be making a profit of £30k-£50k a year which would seem to indicate operating as a limited company would be more tax efficient. She could consider retaining funds in the company in anticipation of opening her own place.
I'd suggest speaking to an accountant if she is genuinly going to be making £50k a year.
I'd suggest speaking to an accountant if she is genuinly going to be making £50k a year.
Thanks for the replies so far.
It is a big variation and due to the fact I haven't asked for her takings over the last 12 months to give anything more specific. I just know that on a bad week she'll do about £700 and a good week £1500. Realistically averaging closer to £1000, so the lower end of the estimation I gave, but she's working hard to build her clientele even further and has recently started taking on hair extensions having just completed another qualification.
I think at this stage, given how new we both are to running a business, sole trader might be the way to go. We just don't want to make a rushed and uninformed decision.
It is a big variation and due to the fact I haven't asked for her takings over the last 12 months to give anything more specific. I just know that on a bad week she'll do about £700 and a good week £1500. Realistically averaging closer to £1000, so the lower end of the estimation I gave, but she's working hard to build her clientele even further and has recently started taking on hair extensions having just completed another qualification.
I think at this stage, given how new we both are to running a business, sole trader might be the way to go. We just don't want to make a rushed and uninformed decision.
If she can earn £50k on her own, whilst retaining control of her working hours and no risk - then I’d forget the dream of opening a salon and think herself very lucky.
Whilst I don’t own the salon, I have a close affiliation/business interest in a local salon with 10 chairs and 4 treatment rooms...
It is an almighty headache. Managing staff is incredibly hard, staff turnover like nobody’s business with the added complication of staff taking customers with them on exit!
Not to mention the daily trauma of dealing with 15-20 mainly young females!
Surely just start as a soletrader?
Whilst I don’t own the salon, I have a close affiliation/business interest in a local salon with 10 chairs and 4 treatment rooms...
It is an almighty headache. Managing staff is incredibly hard, staff turnover like nobody’s business with the added complication of staff taking customers with them on exit!
Not to mention the daily trauma of dealing with 15-20 mainly young females!
Surely just start as a soletrader?
Edited by russy01 on Wednesday 14th August 18:32
russy01 said:
If she can earn £50k on her own, whilst retaining control of her working hours and no risk - then I’d forget the dream of opening a salon and think herself very lucky.
Would very much echo this.As mentioned, my wife's a mobile hairdresser. A shop came up in the village where we live some years back and we looked at taking it on and setting up a salon. We did the sums and worked out she'd be no better off but with added responsibility, risk and hassle. The only 'potential' was what we might get if we sold the business on later but really wasn't worth the risk or effort.
Interestingly, there's another mobile hairdresser in our area who we sort of know. Turns out he was looking at exactly the same shop with exactly the same idea and reached the same conclusion.
jammy-git said:
How large do you need to be to operate through a limited company?
There are no size limits - but an individual has to weigh up the extra requirements of running a company compared to a simple sole trader v' any potential advantages - either tax or legal. A chat with an accountant would be advisable.Sole trader, make sure she stays under the VAT threshold, (unless she's going to be buying loads of equipment/colours etc, or going to breach the VAT limit then perhaps look at the flat rate vat scheme).
Simple book keeping, and self assessment.
Always worth getting some advice as to what is deductible (mileage, uniform etc), and if there are any allowances, also if she is coming out of employment into self employment, some kind of income safety net (sick but still paying for a chair, and household bills etc), savings plus income protection for example.
Hope all goes well.
Simple book keeping, and self assessment.
Always worth getting some advice as to what is deductible (mileage, uniform etc), and if there are any allowances, also if she is coming out of employment into self employment, some kind of income safety net (sick but still paying for a chair, and household bills etc), savings plus income protection for example.
Hope all goes well.
Eric Mc said:
Too small to operate through a limited company.
??? three are limited companies with turnover in the hundreds of pounds - how would £50k - £70k be too small?Or are you referring to tax efficiency?
Or the height of the OP's OH (though you can get height adjustable chairs I believe!)
akirk said:
Eric Mc said:
Too small to operate through a limited company.
??? three are limited companies with turnover in the hundreds of pounds - how would £50k - £70k be too small?Or are you referring to tax efficiency?
Or the height of the OP's OH (though you can get height adjustable chairs I believe!)
russy01 said:
If she can earn £50k on her own, whilst retaining control of her working hours and no risk - then I’d forget the dream of opening a salon and think herself very lucky.
Whilst I don’t own the salon, I have a close affiliation/business interest in a local salon with 10 chairs and 4 treatment rooms...
It is an almighty headache. Managing staff is incredibly hard, staff turnover like nobody’s business with the added complication of staff taking customers with them on exit!
Not to mention the daily trauma of dealing with 15-20 mainly young females!
Surely just start as a soletrader?
Whilst I don’t own the salon, I have a close affiliation/business interest in a local salon with 10 chairs and 4 treatment rooms...
It is an almighty headache. Managing staff is incredibly hard, staff turnover like nobody’s business with the added complication of staff taking customers with them on exit!
Not to mention the daily trauma of dealing with 15-20 mainly young females!
Surely just start as a soletrader?
Edited by russy01 on Wednesday 14th August 18:32
This 100%! I've owned salons for 10+ years now and wouldn't wish it on my own worst enemy, the sole trading chair renter is definitely the sweet spot if she gets on with her co-workers.
The only complication is the VAT element. Basically most chair renting businesses as cooking the books to avoid paying VAT and it's completely wrong. For avoidance of VAT all chair renters are supposedly sole businesses who simply rent space within a salon even though the main business provides their equipment, stock, retail products, puts their money through their till/card machine, takes bookings, refunds errors etc. To name but a few.
So you can have a merry band of girls each turning over £50k each, putting the salon turnover up at £400k but no VAT being paid, or only a small amount on the operating profit of the salon.
The VAT man isn't currently making any noises to do anything about it, they periodically say they're going to stamp down on it but nothing usually becomes of it but if they do, the chair renters will be in trouble.
I think LOH’s point is that the Salon is deliberately staying below the VAT threshold by only showing the Chair Rental Income in its turnover figures when in reality it should be showing all the income from each hairdresser. It’s basically a form of disaggregation
Countdown said:
I think LOH’s point is that the Salon is deliberately staying below the VAT threshold by only showing the Chair Rental Income in its turnover figures when in reality it should be showing all the income from each hairdresser. It’s basically a form of disaggregation
Exactly.LaurasOtherHalf said:
Countdown said:
I think LOH’s point is that the Salon is deliberately staying below the VAT threshold by only showing the Chair Rental Income in its turnover figures when in reality it should be showing all the income from each hairdresser. It’s basically a form of disaggregation
Exactly.The salon owner's only income is from the chair rentals and a few products, why would they need to declare the income of each self employed Stylist who pay taxes on their takings as an independent business?
But thanks for the input everyone, it was helpful and the decision was made to start as a sole trader.
iacabu said:
LaurasOtherHalf said:
Countdown said:
I think LOH’s point is that the Salon is deliberately staying below the VAT threshold by only showing the Chair Rental Income in its turnover figures when in reality it should be showing all the income from each hairdresser. It’s basically a form of disaggregation
Exactly.The salon owner's only income is from the chair rentals and a few products, why would they need to declare the income of each self employed Stylist who pay taxes on their takings as an independent business?
But thanks for the input everyone, it was helpful and the decision was made to start as a sole trader.
iacabu said:
Please could you explain this a littler further?
The salon owner's only income is from the chair rentals and a few products, why would they need to declare the income of each self employed Stylist who pay taxes on their takings as an independent business?
But thanks for the input everyone, it was helpful and the decision was made to start as a sole trader.
I think the issue is that HMRC have a fairly long list of requirements if the chair renter is to be considered as a truly separate entity & very often these are not complied with:The salon owner's only income is from the chair rentals and a few products, why would they need to declare the income of each self employed Stylist who pay taxes on their takings as an independent business?
But thanks for the input everyone, it was helpful and the decision was made to start as a sole trader.
https://www.handhaccountants.com/news-and-events/h...
LaurasOtherHalf said:
russy01 said:
If she can earn £50k on her own, whilst retaining control of her working hours and no risk - then I’d forget the dream of opening a salon and think herself very lucky.
Whilst I don’t own the salon, I have a close affiliation/business interest in a local salon with 10 chairs and 4 treatment rooms...
It is an almighty headache. Managing staff is incredibly hard, staff turnover like nobody’s business with the added complication of staff taking customers with them on exit!
Not to mention the daily trauma of dealing with 15-20 mainly young females!
Surely just start as a soletrader?
Whilst I don’t own the salon, I have a close affiliation/business interest in a local salon with 10 chairs and 4 treatment rooms...
It is an almighty headache. Managing staff is incredibly hard, staff turnover like nobody’s business with the added complication of staff taking customers with them on exit!
Not to mention the daily trauma of dealing with 15-20 mainly young females!
Surely just start as a soletrader?
Edited by russy01 on Wednesday 14th August 18:32
This 100%! I've owned salons for 10+ years now and wouldn't wish it on my own worst enemy, the sole trading chair renter is definitely the sweet spot if she gets on with her co-workers.
The only complication is the VAT element. Basically most chair renting businesses as cooking the books to avoid paying VAT and it's completely wrong. For avoidance of VAT all chair renters are supposedly sole businesses who simply rent space within a salon even though the main business provides their equipment, stock, retail products, puts their money through their till/card machine, takes bookings, refunds errors etc. To name but a few.
So you can have a merry band of girls each turning over £50k each, putting the salon turnover up at £400k but no VAT being paid, or only a small amount on the operating profit of the salon.
The VAT man isn't currently making any noises to do anything about it, they periodically say they're going to stamp down on it but nothing usually becomes of it but if they do, the chair renters will be in trouble.
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