If you are a self-employed hairdresser or hoping to become one, then this tax guide is just for you.
I’ll help you to understand:
- More about being self-employed;
- The taxes you need to pay;
- How to reduce your tax bill;
- Your legal responsibilities to HMRC;
- Bookkeeping and record-keeping for self-employed hairdressers.
What Does It Mean to Be Self-Employed?
When you are self-employed it means that you work for yourself rather than for someone else.
This means you:
- Are responsible for finding your own work;
- Have the power to decide whether you accept an appointment or not;
- Need to have your own method of transport, mobile phone and equipment;
- Will not receive sick pay or holiday pay, so you will go without earnings during these times;
- Be sure you have the right qualifications to operate;
- Take out your own insurance;
- Need to register as a self-employed hairdresser with HMRC, work out your own taxes and send them a self-assessment tax return.
You are not restricted to just being self-employed either.
You can even hold down an employed job while working as a self-employed hairdresser as well.
When To Register as Self-Employed
You need to register as a self-employed hairdresser if you earn more than £1,000 during the tax year.
A tax year runs from 6 April to 5 April.
If you earn less than £1,000 then you may be able to take advantage of the HMRC Trading Allowance. Claiming this allowance may mean you avoid needing to register with HMRC and file a self-assessment tax return.
If you earn more than £1,000 or plan to build up your hairdressing business, then you should register as self-employed with HMRC.
You need to register by 5th October in the second tax year of starting work as a self-employed hairdresser.
So if you started on 1 December 2018, you’ll need to register as self-employed by 5 October 2019.
How to Register as a Self-Employed Hairdresser
You can register as self-employed online. It’s fairly easy to do yourself and I’ve put together a video guide here.
Useful Reading: How to Register as Self Employed
What Taxes Do Self-Employed Hairdressers Pay
Anyone who is self-employed must pay the following taxes:
- Income tax
- Class 2 national insurance
- Class 4 national insurance
The amount of each of these you pay depends on your earnings.
Earnings when you are self-employed means all your income less all your business expenses.
For this reason it is really important to make sure you claim all the expenses you can against your taxes.
There are rules set out by HMRC which expenses you can claim for (allowable expenses) and those you can’t (disallowable expenses).
Allowable Expenses for Self-Employed Hairdressers
You’ll be able to claim most things that you buy as a self-employed hairdresser against your taxes.
Here are some typical allowable expenses:
- Equipment like scissors, towels, dyes and hairdryer;
- Hairdressing products like shampoos, conditioners and colour kits;
- Chair rent;
- A portion of your household running costs, if you choose to work at home;
- Computer & printer to manage your bookings, make product orders, manage social media or print out leaflets/brochures;
- Website design, build and maintenance;
- Web hosting;
- Marketing or paid advertising;
- Phone and Data;
- Branded clothing and protective wear like gloves;
- Mileage claim for using your own car (currently 45p for the first 10,000 miles of driving and 25p thereafter);
- Training to keep your skills up to date, along with incidental travel and food costs or overnight stays;
- Accountants fees;
- Bank charges for a business bank account.
There may be expenses you pay for that you use personally, like your mobile phone. In these cases, you can only claim a portion as an allowable expense.
So if you use your mobile phone for 60% work and 40% personal, then you take 60% of the total costs to put against your taxes.
Disallowable Expenses for Self Employed Hairdressers
After years of people pushing the boundaries and claiming for some questionable expenses, HMRC have a growing list of expenses that are disallowable.
That means even if you pay for them because you are self-employed you won’t be able to claim them against your taxes.
Here are some common examples of disallowable expenses for self-employed Hairdressers:
- Parking fines;
- HMRC penalties and interest;
- Training for new skills;
- The cost of commuting to your place of work;
- Personal clothing;
- Lunch, except in certain circumstances.
Tax Reliefs and Allowances for Self-Employed Hairdressers
Taking advantage of tax reliefs and allowances is another way to reduce your tax bill. Typical tax reliefs and allowances you may be entitled to include:
- Personal allowance which is the tax-free amount everyone is entitled to earn;
- First-year allowances on tools and equipment;
- Marriage allowance.
Looking for more ways to Reduce Your Tax Bill? Then read this post
Self-Assessment Tax Return
You need to declare all your earnings from your hairdressing business, as well as any other forms of income you have on a self-assessment tax return.
This is the official form required by HMRC and it’s due by 31 January each year. The penalties for missing this deadline start at £100.
A self-assessment tax return contains:
- Your personal details;
- A summary of all your income not just from your hairdressing business (like bank interest, employment income and rental income);
- Details of allowable expenses you wish to claim against your taxes;
- A tax calculation;
- How much tax you need to pay.
One tax return form covers one tax year.
So a tax return for 2018/2019 covers earnings from 6 April 2018 to 5 April 2019 and needs to be filed by 31 January 2020.
When is Your Tax Due?
Any tax you need to pay is due by 31 January, along with your self-assessment tax return.
Payments on Account
In addition to your tax payment, you may need to make a contribution of 50% towards your next year tax bill. This is called a payment on account and can come as a shock to some self-employed people.
Bookkeeping and Record-Keeping for Self-Employed Hairdressers
One of the keys to reducing your tax bill is to stay on top of your bookkeeping and tacking all your expenses.
You’ll also need to make sure you keep all your receipts support all the expenses you want to claim, as well as details of what you have been paid.
The simplest way to do this is to:
- Open up a separate bank account for yourself and set this to send/receive any payments. That way when tax time comes you
hasa record of everything that has happened.
- Save all your receipts and reports using a bookkeeping app.
Quickbooks is a great option for self-employed hairdressers since you can photograph and store your expenses on the go, as well as using the app to automatically track your business mileage.
Updated 3 April 2019