Self Employed Beauty Therapist? Here is our tax advice guide just for you. Whether you are starting out or just want to understand more about allowable expenses, here are some useful tips specifically for self employed beauty therapist.
How to Register with HMRC as a Self Employed Beauty Therapist
When you are self employed you are responsible for your own taxes and national insurance (unlike if you were employed in a job and issued with a payslip each month showing your pay and deductions).
The simplest way to register as Self Employed is to visit the HMRC website and register online. The process can take 10 days to complete upon which HMRC will post you a UTR number (Unique Tax Payers Reference). Keep this safe as you will need this code to file your Self Assessment Tax Return.
Once self employed you must then:
- Set up a bookkeeping system that keeps a record of all your income and expenses, as well as filing all your receipts;
- Complete a Self Assessment Tax Return by 31 January each year summarising your business income and expenses;
- Pay any Tax due by 31 January each year (and payments on account by 31 January and 31 July each year).
Your tax return submitted by 31 January covers the previous tax year (a tax year runs from 6 April to 5 April). So for example, your tax return due by 31 January 2018 details your earnings between 6 April 2016 to 5 April 2017 and this will detail your income from cleaning as well as any other earnings you may have (such as from other rental income, bank interest or dividends).
It is also worth noting that if you already complete a Self Assessment Tax Return, for example because you collect rental income or have savings interest, that you need to complete a Form CWF1 to notify HMRC that you have a new form of income you need to report on. Again, you can do this online here and you will need your Unique Tax Payers Reference.
When Should You Register with HMRC as a Self Employed Beauty Therapist?
You must register with HMRC as self employed as soon as possible after starting work as an beauty therapist but HMRC rules are that you must register by 5 October in your business’ second tax year.
However if you are newly self employed and expect that your gross income will be less than £1,000 in your first year, you may be entitled to the £1,000 Annual Tax Allowance for traders meaning you don’t need to register and declare your income. Check the criteria to understand your eligibility and whether this allowance is the most tax efficient solution for you here.
How Much Tax Do You Pay as a Self Employed Beauty Therapist?
When you are self employed you pay tax based on your profits of your work (all your income less all your costs) and the amount of tax you pay depends on how much profit you make. Self employed individuals are also required to pay Class 2 and Class 4 National Insurance, which is again dependant on your profits.
How to Work out Your Profits
You need to add up all your income from instructing, which includes all cash payments as well as bank transfers, then deduct all your expenses (known as allowable expenses).
Allowable Expenses for Self Employed Beauty Therapist
Allowable expenses are business expenses which you pay for as part of your work or business. These reduce your profits and so reduce your tax bill, so it is really important to keep a log of them as well as the receipts. Here are some typical allowable expenses:
You may need to invest in items such as a treatment couch, hair removal equipment or beauty products. These are fully allowable and some may attract. Annual Investment Allowance, which is another way of making tax savings. So keep all the receipts of your equipment so you can discuss deductions with your accountant.
Computer & Printer
You will probably need a computer & printer to manage your bookings, make product orders, manage social media or print out leaflets/brochures. Your computer and printer may be tax allowable either in full or a proportion of its value, so make a note and keep the receipt to discuss at tax time.
Having a website is so important and it gives you the chance to detail your services, prices, showcase your previous work and let people get a feel for your experience and personality. If you are considering investing in a website then it is worth noting that the website, domain and hosting again are all allowable expenses.
The cost of your ongoing beauty products needed for treatments such as moisturisers, wax or even cotton wool are all allowable expenses.
Phone and Internet
The cost of a business phone (mobile and/or landline) and your internet is an allowable expense however if there is personal use then only a proportion of the contract costs can be claimed.
If you have a ‘uniform’ with your logo that you wear while you work, then you should be able to claim for this cost. Normal clothing is not allowed and neither is the cost of washing your clothes at home.
If you are a mobile beauty therapist offering home visits you will incur the cost of travelling to your clients. Keep hold of your receipts for trains, tubes or taxis as they should all be allowable expenses and help reduce your tax bill.
As a mobile beauty therapist you may need to use your car to travel to clients and you should note down the mileage as this falls under the category of travel. Record you miles to and from your destination since you can claim 45p for the first 10,000 miles of driving and 25p thereafter.
Note – If you choose to rent a room at a salon you may not be able to claim for the cost of travel/mileage as this may represent your place of work. Make sure you take professional advice before claiming for travel/mileage as incorrect claims can result in penalties.
Whether you are a mobile beauty therapist or work at home, you may be required to take out some form of insurance to cover loss or damage. Again you will be able to claim this cost as an allowable expense.
Therapy/Treatment Room Rent
If you opt to rent a room as part of a larger salon, then again the cost of doing so is an allowable expense and will reduce your taxable income.
Use of Home
If you choose to set up a therapy room at home then there are HMRC rules that will allow you to claim an amount for the running costs of doing so from your home either as a flat rate or as a portion of your household bills such as gas, water, electricity or rent. Make sure you have an idea of your household running costs to discuss with your accountant at tax return time as they will help you work out how much you can claim against your taxable income.
You may opt to take courses to improve your skills or learn about new beauty treatments available. These will probably be tax allowable so keep your receipts ready for when you need to submit your tax return. If you need to travel to your course or stay overnight as part of the training these costs are also tax deductible, as well as the cost of a basic meal for lunch/dinner. Take the time to collate your receipts or note down mileage so you can discuss your claim against your taxable income with your accountant.
Any marketing you do (online or offline), paid ads or anyone you pay to help you with your marketing is also fully allowable so make sure you download or ask your marketing assistant to send you an invoice before you pay them.
Accounting & Bookkeeping
Keeping accurate business records will help to avoid missing any entitlements or tax relief that you may be eligible for. If you buy an accounting spreadsheet then the cost is fully tax allowable. Then, if you choose to use an accountant to complete your self assessment tax return, again their fees will be an allowable expense. It is worth noting that keeping your business records in good order will help keep your accounting fees at a minimum.
It is advisable to open a business bank account and keep your business and personal expenditure separate. The bank charges you pay on your business bank account is an allowable expense.
Top Tax Tip:
Even if you are currently not making any money as a self employed beauty therapist, you must still register with HMRC and complete a tax return. This may feel onerous, but completing a tax return means you can record all your expenses to create a tax loss. This can then be used against any money you make in future tax years and save you tax at this point.
Recording Your Business Transactions
You will typically be paid in cash bank transfer or by card if you choose to offer a card payment service like Sumup. Like any self employed sole trader, it’s important to keep accurate business activity records and store receipts that support all your business expenses. Doing so will make life easier when the time comes to completing your self assessment tax return and claiming for any allowances/reliefs that you are entitled to. Incomplete or inaccurate records will demand more time and hike up any accounting costs and can result in fines from HMRC.
When you are self employed using a spreadsheet to summarise your income and expenses is a straightforward, HMRC compliant way to record your business transactions especially with the introduction of making tax digital from 2019. Making Tax Digital will require most self employed individuals to maintain their bookkeeping digitally and report on their earnings quarterly to HMRC.
My bookkeeping spreadsheet contains a easy to understand dashboard which estimates the amount of tax you need to pay as well as automatically summarising the numbers that matter to you and your business. It’s simple to use and an affordable way to keep track of your business’ profits and automatically estimate tax you need to pay.