Hair-raising tax task-force for Northern Ireland
Hairdressers and beauty salons in Northern Ireland face a clampdown from today. HMRC has launched a taskforce in the province to bring in an extra £2.5 million. Up to 300 businesses may be hit.
This follows a series of taskforces into various business sectors across the UK. Each Taskforce tends to be dedicated to a region of the UK, and it is Northern Ireland’s turn.
Regular readers of my column may remember that one of only a handful of people jailed in Northern Ireland for tax offences was a hairdresser. Michael McGuigan was sentenced to over 2 years jail in a Belfast court back in 2000. He was later disqualified from being a company director.
So what should today’s hairdressers and beauty salon operators fear from this taskforce into the hair and beauty business?
CHAIR RENTAL – some hairdressers will try to avoid ‘employing hairdressers’ by charging them a rent for their chair. Then the stylist claims they are self-employed. This is used as a way of the owner keeping their turnover down, avoiding PAYE paperwork and perhaps not registering for VAT. HMRC doesn’t like this and anyone charging rents for chairs, or themselves paying a landlord chair rent, may find they are under the spotlight. The same will apply for beauticians who rent a space in a salon.
VAT REGISTRATION - If your sales in any rolling 12-month period exceed £77,000 then you have to register for VAT. So any salon with more than about 3 stylists should probably be registered. Bigger salons which aren’t VAT-registered may find HMRC coming for them. They may even borrow tips from their Customs colleagues, and watch the premises for a while before contacting the business. That way they can assess how many customers come and go. It’s a good way to see if the till records might be wrong.
NOT REGISTERED AS SELF-EMPLOYED – Once you set up on your own you must register with HMRC within 3 months. It’s easy to do – by phone, online or by filling in a wee form. If you miss this deadline you become liable to a £100 fine, and you have started off your relationship with HMRC in a bad way!
CASH TAKINGS, not declared – these days, with the Ulster Bank in free-fall and RBS only recovering from a melt-down, people are forced to operate in cash more than they might normally. Many people still pay for hair and beauty treatments by cash. Nothing wrong with that. Of course the problem comes if the person in business does not declare the sale! HMRC looks at cash business and assumes some of the cash is not declared. You then have to convince them otherwise.
PAYE FOR STAFF – two problems arise with employers who have staff. One is that they don’t tax them properly as employees, deducting tax and National Insurance. The other problem is when they take tax and National Insurance off the staff, but don’t pay it over to HMRC. This sometimes happens due to cash-flow but in all cases is viewed very seriously by HMRC. They see is as akin to theft – you took the money off your worker saying it was tax, then aren’t passing it on to HMRC. I expect this new HMRC taskforce will be on the lookout for workers paid but not properly taxed, and also for employers who are holding onto the tax they have deducted.
TAX ARREARS – if your hair or beauty business has arrears of income tax or corporation tax you can expect that your higher profile may encourage the HMRC Taskforce in your direction. After all you have demonstrated that your business poses a risk to HMRC of them not getting the tax which is payable.
WEDDINGS – just like the rest of us, HMRC staff often get married. (To prove the point I married a Tax Inspector myself, but she has since joined me on ‘the other side’). This means the staff are well aware how much is spent on treatments coming up to a wedding, or on the big day. If your business fails to declare these large one-off events then you are committing an offence and could face the wrath of the Revenue.
HOME-BASED & MOBILE SALONS – lots of people start out in a small way working from home, or the back of their car. The same rules apply about having to register and declare all your income. Don’t forget that HMRC receives anonymous information about people who may be fiddling their taxes. So even if you think you have kept a low profile, HMRC may still have your details on a little list. And they use Facebook too!
This HMRC taskforce on hairdressers and beauty salons is only operating in Northern Ireland. There’s a good chance, if you are in the business, that you or one of your competitors will come to their attention. Of course your competitor might never admit it. Take the time, now, to do some housekeeping to make sure your compliance with the tax rules is top-notch. You will have an easier run from HMRC if they see you have already improved things.
Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – www.huston.co.uk or 028 9080 6080