Since the reopening of salons on 5 April, hairdressers have been desperately working to make up for lost time. While many will have looked at alternative sources of income during the pandemic, with rentable chairs sitting empty, others will have taken advantage of the Government’s emergency support measures to fill the financial gaps.
Either way, the subject of financial planning has never been more important. Pandemic or not, taking a proactive approach to financial management is vital to the smooth running of a salon. So what are the key things to remember when thinking about finances?
Practice good bookkeeping
It’s very easy to lose track of invoices and expenses if you don’t proactively manage your finances all year round. It’s important that hairdressers keep good paper trails. If you process expenses manually, you need to keep a rigid filing system for your forms, invoices and receipts as any lost paperwork could lead to a hefty penalty from HMRC.
You should also consider using an online invoicing system so you can invoice electronically, and access real-time data and all the information you need for a tax return at the click of a button.
Get into good habits
There are some simple and easy steps you can take throughout the year, not just in the run-up to a significant tax bill, that can help you stay in control and on top of money management, particularly in the current climate. These include always understanding your current financial position; planning for tax deadlines; implementing an effective credit control system, to ensure any outstanding debts don’t adversely impact on cash flow; monitoring your outgoings to assess where your business can become leaner; and remembering that cash is King.
Tackle the financial year and the effects of COVID-19
The Government’s support packages have provided much-needed financial assistance to the self-employed and small business owners. But it’s essential to fully understand the tax implications and eventual cost of Government grants and any other new state help received in the 20/21 tax year, such as universal credit and jobs seekers allowance.
The Self-Employment Income Support Scheme (SEISS), for example, is taxable. While it doesn’t need to be repaid, it is subject to Income Tax and Self-Employed National Insurance.
Keep ahead of Government changes
The Treasury’s announcement that Making Tax Digital will be extended to all taxpayers, who file income tax self-assessment tax returns for business (self- employed and partnerships) or property income of more than £10,000 a year from April 2023, has placed a firm emphasis on boosting efficiency and compliance for self-employed workers.
By keeping your financial information up to date, online and in real-time, you can save yourself hours of valuable time and focus instead on your business.
Effective tax planning beyond self-assessmen
It’s the 2020/21 tax bill that will be dominated by the coronavirus and it will pay to get ahead of the curve. The sooner you start compiling your tax return, the better. This will give you a good understanding of your tax bill, so you have plenty of warning and less chance of unexpected costs.
Mike Parkes is Technical Director at GoSimpleTax – the online tax return and self-assessment software.