Hairdressers Accounts - where to begin? - The Book-keepers Forum (UK)

Newby · Member

Hairdressers Accounts - where to begin?

Shamus · Forum Moderator & Expert

Hi,

in your first message you said that you were a chartered accountant but I'm guessing from the questions that was quite some time ago.

As it's been some time, first things first. You are covered for MLR aren't you? If not it carries two years jail and / or an unlimited fine.

Next. Everything must be evidenced. Quite difficult with a cash business such as this as the cash tends to go walkies between receipt and the bank.

Hairdressers ALWAYS have an appointments diary which could be quite revealing as to actual income. (this may be the informal log that you speak of). In itself however that is not evidence.

The micro businesses are often their own worst enemy on the bookkeeping front and the best that one can often hope for is that HMRC can't be bothered with them otherwise many of them would spend the bulk of their lives with all of their bank accounts frozen.

You ask about travel allowance. Can I assume a mobile hairdressers?

In order to give an allowance for travel the client must have recorded their business mileage in their mileage log. This might be as good as it gets on attempting to tie income to any form of evidence although in itself this is also open to abuse.

The rate as you know is 40p per mile for the first 10k and 25p per mile thereafter but I doubt if your client will have done more than 10k so should make that bit nice and simple.

For the expenses that would be restricted to expenses incurred wholly and exclusively for the business only (sorry, teaching my granny to suck eggs there!).

Moving forwards with this client set them up on VT Cashbook. It's free to download and use and it should help with them keeping track of things in future years.

Also, if they're not currently keeping a mileage log point out to them, no log, no payment!

Good luck with the client. Hope that you get a few VAT registered limited companies soon.

It will all come flooding back and we hope to hear lots from you in the regular debates on the site.

Kindest regards,

Shaun.

Newby · Member

Hi Shaun,
Thanks for your message. Yes, spot on, its been a while. A long while.
I understand through the ICAEW that I am covered for Money Laundering and do not need to seperately register with HMRC.
However, saying that, it is abit worrying that my first potential client has 99% cash tranactions - but what else can a mobile hairdresser do?
But i am not sure how to go about ensuring that I have captured all the income.
Also, what checks I should do in regard to the MLR???
Thanks for making me feel welcomed :)
x

Shamus · Forum Moderator & Expert

Hi Alison,

No probs. We're a pretty friendly bunch on here (much nicer than the clever bods over on accounting web) and at times the conversation here gets pretty surreal.

A good starting point for what you need to check for under MLR can be found on the business link website. Try this link http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1082683566

Its not possible to ensure completely that a client of this nature is being completely honest about their actual income. All that you can ensure is that you know where all of the money paid into the bank has come from and that you can account for the the records that have.

The client must be made aware going forwards that proper records must be kept.

If the client is in such a mess that there are no books as such to keep then I would not blame you for giving this client free advice for this year but refusing to do her books on the grounds that their is insufficient detail for you to be able to adequately do your job.

There are times when one has to walk away from clients even though we always try not to. Not just because they pay us but more because they need us to sort them out. However, there is always the odd one who just will not keep a record of their transactions or wants to do something that's illegal or just plain won't listen to us.

I think that Bill or Sheila might be able to offer better advice on this particular case as mine tend to be limited companies rather than one man bands. Even the odd sole trader that I have had has been all bank rather than cash based so the shoe box full of receipts does at least tally to something when I sort them out.

Good luck and hope to hear from you again soon,

All the best,

Shaun.

Marky65 · Guru

Hi Alison

I have just taken on a client who is a beauty therapist and works from home so this sounds in the similar sort of area that your client is in.

She keeps all of her income in her diary next to the appointment made, for this tax year I am getting her to keep it is a separate accounts book.

For her expenditure she has kept all of her receipts and remember no receipts equals no claim and just because there is a receipt it doesn't automatically follow that it can be claimed, is the expense wholly, necesarily and justifiable incurred in the course of the business. For mileage claims, the client must keep a log, for me it is no log no claim.

Does she hold any stock of shampoos, conditioners etc that she uses on her clients, if so don't forget that this needs to be taken into account.

That is about all I can think of at the moment, will keep it in the back of my mind whilst I out at a clients today. But as Shaun says both Bill and Sheila will probably have more to add

Regards

Mark

RobH · Expert

I think you have to try to help your client work out her income, it won't be dead on but as she has a diary she will probably put 'Mrs Jones, Cut and colour' or something and she will have an idea of what she charged. If she doesn't think she has all the entries in her diary, look at how amny visits a week she made and try to work out what an average would be. Mobile hairdressers are never going to earn a fortune and if she has aturnover of £20k I'd be amazed, I bet it will be more like £12 to 15K. I would also play devils advocate if the turnover is really low and ask questions of how she is living, who pays the mortgage, groceries, bills etc and put a note on her file. You do not have to take a stance of a disbeliever just ask pertinent questions.

The key though as Shaun has said is to put her right going forward. I find with this type of client, the simplest thing is to tell her to get 12 envelopes and label them 'April, May, June....' and for her to put all her receipts in the envelopes and to keep a daily takings record. It is the simplest type of business so a sophisticated bookkeeping system is not needed but let her know that our friends at hmrc like to take a look at cash businesses on the grounds that temptaion sometimes gets the better of them.

Out of interest (and obviously ignore this if you want, but I am nosey!), what does a chartered accountant charge for this kind of job?

Rob

semsley · Guru

Can't add much, the only mobile hairdresser I know of uses an NCR receipt book, she gives original to client and keeps a copy in her book - maybe this is a good way of going forward with the client. Receipts from suppliers shouldn't be a problem she should get them from the wholesaler. Mileage log would be necessary but this could be done easily retrospectively if she has a diary of where she went from day to day, mileage can be ascertained from AA or similar by putting in to and from destinations.

Sheila

Newby · Member

Hi everyone,

Thank you so much for your help.

Mark & Shaun - cheers for your prompt replies. Really appreciate your tips.

Shelia - what is an NCR book?

Rob - its a rate that I still need to discuss with the client and am trawling through the internet to get a good rate to suggest. Just because I have the ACA title doesnt mean I know accounts inside out!! Hence can not charge a silly high rate just because of the ACA title! Any suggestions?

At first I would try and get her work her income out as follows:
" income put into the bank plus cash expenses paid out plus any cash she has on her "
But what I think is an idea is to compare income from the above formula to the income she will give me on her list.

BTW - what do you guys do in regard to keeping evidence for your own record? I mean in that you put together people's accounts and hand them over with their documentation. What happens if you get sued or something, how would you prove how you put together the accounts when you have given cashbooks back etc?

...oh....another thing....why am i being called Alison?

x

RobH · Expert

Alison may I refer you to the Trigger/Dave/Rodney sketch on favourite 'fools and horses sketch' thread!

Dave

RobH · Expert

NCR is 'non carbon something or other, but it's a receipt book where you taer the front copy off to give to client and it leaves a carbon copy.

I guess your fee will reflect the time it takesto do plus a bit for expertise. I would only prepare a basic income and expenditure account personally given the records you have and no business bank account. assuming there was nothing else complicated with the tax return it would be priced in the region of £150 to £250 assuming it took no longer than about 3 hours excluding original meeting time. The thing is you may spend a bit more time on it this year but next year you will be able to do it in far less time.

I only keep copies of invoices of large expenditure, capital items and last bank statement as a rule. They are signing the accounts and tax return and it is their responsibility so it would be difficult for anyone to sue you unless you made a compltete hash of teh tax return, but that's what PI insurance is for. I also send out a letter explaining that the client needs to check the tax return to ensure it is accurate, complete and that all income has been disclosed and that if they are satisfied everything is in order to sign and date at page TR6. I feel that covers me.

Rob

Lisa Jo · Senior Member

Ive just completed a full set of accounts tb, balance sheet & P & L for a hairdressers. She used a cash book. All you need is a page for takings (weekly log will do from the cashed up daily till), another page for expenses (inc wages shes paid staff), after everything then she entered the bankings via the bank. This should all balance if you run a full bank reconcilliation and also use a petty cash account. Do you prepare books manually or computerised. I usually do the old accountants way of manual preparation as its easier if doing a full year end, if that makes sense.

Newby · Member

Hi everyone,

Thank you so much for your replies.

I note what you all say about mileage claims.

However, do any of your clients mileage claims be based on to total car running expenses incurred times a % of business use?

Cheers.

RobH · Expert

For mileage, your client should keep a log book of all business miles and then you can claim the appropriate amount.

If you do not claim mileage but claim actual motor expenses, guess what, your client still needs to keep a log book. Put absolutely everything in and for the tax comp, work out the personal use and disallow taht amount from the expenses and from the capital allowances.

Rob

Shamus · Forum Moderator & Expert

Hi person definitely not called Alison,

I've not encountered a situation yet where someone would have been better off claiming the expenses rather than Mileage.

But, if you need the details probably best to go straight to source.

Besides details on this page it also has a link on it to details of self employed claiming motoring expenses.

http://www.hmrc.gov.uk/incometax/relief-self-emp.htm

Your client is still going to need to keep a detailed mileage log of business miles in order to calculate the percentage.

On the Petrol front I'm not 100% sure but my belief is that this raises a fuel benefit on your client of £16,900 * calculated % based on C02 omissions of the car. (£16,900 is a constant regardless of the actual fuel used by your client).

As I say, I may be completely wrong on the fuel treatment as I don't have anyone who uses this method which is normally linked to the provision of company cars. Rob will probably know more about that bit.

cheers,

Shaun.

Shamus · Forum Moderator & Expert

Arggg, you beat me to it again Rob.

What's your view on the petrol benefit?

My experience is either of mileage allowance or company car.

I can get my head around charging a % of actual motor expenses but the fuel side seems exactly the same as if it were supplied by an employer to someone using a company car.

I'm interested to know this as it's definitely a blank hole in the old knowledge.

RobH · Expert

Hi Shaun,

A car is only a company car when supplied by a company and I'm assuming the hairdresser is just self employed, therefore all motor expenses allowed, fuel, rfl, insurance, mot, repairs, servicing etc, but restricted to the business use.

This can be more effective if there are not many miles travelled or if the car is really thirsty, and of course becomes more effective the higher the cost of fuel. However if someone is running a small, economical car and does sufficient mileage then I would usually go the mileage route. I guess if in doubt, do both and see which is best.

Rob

Shamus · Forum Moderator & Expert

Cheers Rob,

one of those "Oh of course" moments as soon as I read your first paragraph.

So, if you own a Jensen Interceptor self employment is definitely the place to be!... Actually, with a 7 litre engine owning an oilfield is probably the place to be.

lor · Guru

I have had a self employed hairdresser, the receipts were put into plastic wallets all together, and I also had a list given to me showing all the monies received as her income. I was given a bank statement also, and train tickets receipts she used to go on courses.

What I did was put it on to excel spreadsheets, then I used produced a simple p&l and balance sheet, then I completed her self assessment tax return.

I enjoyed doing this client, and she has also referred a client to me, who came to her salon, which was good to have, which turn out to be another successful client.

Shortly I have a repeat customer, who runs a farm and is a ltd company. I came to me last year and said he is currently sorting the records to give to me.

What I like about repeat customers are that you are familar with them and it gets easier normally the 2nd time round.

Business is picking up now, I have had a few enquiries the past 2 weeks. I am determined to have plenty of work, and enthusiastic about it. I really enjoy it now, and going out there and getting work, knowing that I did it myself,

RobH · Expert

Good to hear things are picking up Lorraine, I'm sure you will buld a good business.

Rob

Newby · Member

Thanks everyone for your replies. Its really been helpful. I hope to add some value back to the site.

Lorraine - just a question for you....what way did you calculate the travel/mileage for your hairdresser client?
does your hairdresser charge any clothes for work?

cheers
x

Shamus · Forum Moderator & Expert

Hi,

for work clothes refer to BIM37025.

the link is http://www.hmrc.gov.uk/MANUALS/bimmanual/BIM37025.htm

Only if the client can argue that the clothes are purchased wholly and exclusively for the job in question would they be an allowable expense.

Such might happen where the hairdressers had a uniform that they wore when attending clients and may also cover aprons used when dying hair.

I cannot think of any other examples where clothing would be an allowable expense but as I say, refer to the BIM for further guidance.

kind regards,

Shaun.

Amanda · Expert

Shaun,

1001 and you are still a Guru!

A

Shamus · Forum Moderator & Expert

Hi Amanda,

I know, big disappointment there.

Thinking of the last couple of promotions they were at 100 and 500, thinking in multiples of 5 maybe the next one is 2500?... crikey, that could take me a couple of weeks to get to!

lor · Guru

Newby wrote:

Thanks everyone for your replies. Its really been helpful. I hope to add some value back to the site.

Lorraine - just a question for you....what way did you calculate the travel/mileage for your hairdresser client?
does your hairdresser charge any clothes for work?

cheers
x

Sorry newbie, I haven't been on here properly for a few days, had a flu/cold thingy, felt rough for the pass few days.

My hairdresser client, didn't drive so didn't claim for that, but I think the best way for your client to claim would be 40p per mile up to XXXX miles, is it 10,000 miles, can't remember fully of the top of my head. The best way would be for her to record mileage down in a notebook or excel, and keep a list of the number of miles per trip.

She didn't claim for any clothes but as long as they have the company embroidered on them and are just for her work then I can't see a prob them claiming the clothing also.

Hope this helps...

lor · Guru

aw, perhaps embroidery isn't entirely necessary, just an example of it being wholly and exclusively for business, I think if it is hairdressing clothes the client isn't going to wear that outside of business, lol! that should be fine!