Author Archives: Adrian

The why.

I’ve been working in accountancy for around 10 years now. I started out in 2008, qualified as an Accounting Technician in 2010 and then as a Chartered Accountant in 2013. I set up my own Practice in 2016.

For the most part through that journey, my motivation was competitiveness. I wanted to be better than everyone. I wanted to pass exams quicker than colleagues; I wanted to do a better job, have better client feedback. Since opening my own practice, I wanted to take clients off all the other accountants out there. I wanted to be bigger than them, better than them, have better clients, do better work, be taller than them, better looking, better at football than them. To be honest I still do.

Whilst competitiveness might be a motivation, as I’m sure it is for many business owners, it’s not the reason I do what I do. It’s not the “why”.

Accountancy has a bit of a reputation for being boring, grey, monotonous, cold. When I tell people I’m a Chartered Accountant, they do that thing where they suck air in through clenched teeth as if it’s a punishment of sorts. What they really means is, it’s not a job they would want to do. And that’s fair enough; it’s not for everyone.

I’ve always enjoyed the work. From the early days of doing repetitive data input to where I am now, helping businesses grow and evolve, solving clients problems, taking some pressure off them. I work hand-in-hand with business owners, investors, employers, landlords – always doing what I can to help them.

So I know what I do. I also know how I do it.

But why do I do it?

Why “why”?

Why is one of those questions that seems simple to answer at first, but is never just as straightforward. There are the usual canned answers (all of them true for me) – I love what I do, I love dealing with people, I love being my own boss, I like the challenge etc etc. But it doesn’t seem like enough, does it? I’m sure I could find 100 jobs or professions that would check those boxes for me. But I didn’t become a lawyer, or a psychiatrist, or a marketer. Why am I, and why do I continue to be, an accountant?

It’s an important question. I mean, I should really have an understanding of it because I’ve dedicated the rest of my life to following this path. After having children and getting married, this is the biggest commitment I’m going to make in my life.

But, like I said, this question is never as simple to answer as first anticipated. In truth, it’s difficult to answer without the context of “what” and “how”, but for me, it ultimately comes down to a set of core beliefs.

What is the “why”?

My “why” can be best summed up as follows:

  • I believe that even fledgling startups can become global players in their market and I want to help them achieve that.
  • I believe that good accountants offer much more to businesses than just preparing accounts and filing tax return. They can point businesses in the direction of success and steer them clear of failure.
  • I believe that small businesses build communities of engaged, interested and interesting people and I want to be part of that.
  • I believe that no matter the breadth of your business knowledge, you can never know everything you need to know, and I want to be there for businesses to fill that knowledge gap where I can.
  • I believe that trust in business is earned and I’m always willing to give 51% to the clients 49% to gain that trust.
  • I believe that how you make your money is more important that how much money you make
  • I believe “selling time” and billing by the hour does not show an appreciation for what clients actually want to buy
  • I believe in selling peace of mind, clarity and expertise. I believe in selling clients their own time back to them.
  • I believe that focusing on your strengths will increase your odds of success.
  • I believe that if you want to be an anomaly, you have to act like one.
  • I believe that good advice is always the advice a client needs to hear, not just what they want to hear.

These are the real reasons I do what I do. I want to help people and I want to make businesses, people and society better in the small and not so small ways that I can. Accountancy (the “what”) is just the vehicle I choose to do this with (the “how”).

When I started my Practice, I was determined to do things differently than other accountants. Not because they were wrong or bad, just because doing things the way I do now makes more sense to me. It’s more compatible with my “why”.  And if “why”, at it’s simplest, is a set of core beliefs then there was never going to be any other way to operate.

So, what’s your “why”?

This post was inspired by the revisiting of fantastic TED talk by Simon Sinek. I would urge all of you to watch it. If you’ve already seen it, watch it again.

Interview with ICO Examiner

Here’s a link to an interview I did with ICO Examiner around the taxation of cryptocurrency gains and what to expect from 2018. ICO Examiner are a website that offer news, reviews and research around ICO’s (Initial Coin Offerings) of companies rolling out business models and platforms using blockchain technology. For anyone looking to get involved in cryptocurrency and look for potential investment opportunities, you’ll find a wealth of information on their site.

Transcript of Interview

Crypto tax image

Taxation of Bitcoin and Other Cryptocurrencies

Taxation of Bitcoin and Other Cryptocurrencies

It’s been hard to avoid the talk of Bitcoin’s phenomenal surge in value in the past few months. On 1st January 2017, it hit $1,000 for the first time since it’s conception. On the 20th December 2017, it hit its all time high of $19,783 before falling back to end the year at around $13,700. Since then, Bitcoin, as well as a plethora of other established and newer cryptocurrencies, have gained a lot of attention as people look to them as a place to make some substantial investment gains.

Whilst 2018 looks to be a year that pushes the value and profile of these investments even further, the question many have asked of me is, are these gains going to be taxed and if so, how?

HMRC first set out their stance on cryptocurrencies back in March 2014 with the publication of Revenue & Customs Brief 2014 (9). Since then, they have remained largely silent on the topic.

VAT Treatment of Cryptocurrencies

As would have been expected, the buying and selling of cryptocurrencies are pretty much outside the scope of VAT. Services provided connected with trading in crytpocurrencies, such as consultancy services, will however be subject to VAT. HMRC also clarified that just because a transaction is settled in a cryptocurrency, this does not mean that the underlying supply is not subject to VAT. So buying goods and services using Bitcoin, doesn’t mean VAT shouldn’t be charged in the normal way. As with any other transaction, the £STG value is the equivilent of the market value of the cryptocurrency at the time of the transaction.

Corporation Tax, Income Tax and Capital Gains Tax

The taxation of profits from buying and selling cryptocurrencies is more than likely going to fall in to one of these three tax heads. In deciding which one, HMRC have said this must be considered on a case by case basis. For an individual to be subject to Income Tax (or a company to be subject to Corporation Tax) on cryptocurrency gains, there needs to be evidence of a trading business. To decide if this is the case, HMRC say that badges of trade must be present.

Not all of these “badges” need to be present in order for a trade to exist. It’s only when you look at all the badges that are present in the context of the activity that you can decide if you are trading in cryptocurrencies or investing in them.

So what does this all mean in practice? Put simply, if you are buying and selling numerous cryptocurrencies very frequently (in particular buying and selling the same cryptocurrency multiple times a day), you are potentially going to be deemed to be trading. If you buy cryptocurrency and hold on to it for a prolonged period, it’s more likely to be seen as an investment.

The biggest potential risk here (aside from the inherent risk in buying and selling any currency, commodity etc) is that some people will make vast amounts of profit from cryptocurrencies, have HMRC deem them to be trading, and end up being hit with the top rate of income tax on their earnings (currently 45% plus 2% National Insurance). At the higest rate of tax, individuals also lose their tax free personal allowance.

For this reason, it’s worth looking at your activity now, assessing the likelihood of being deemed to be trading, and if you are, consider moving your cryptocurrencies into a Limited Company where lower overall rates of tax apply. If the profits are in the company, some effective tax planning can make sure you hold on to more of your gains.

For those that are investing, as distinct from trading, in cryptocurrency, these gains will be subject to Capital Gains Tax (CGT). The good news here is that every individual has an annual exemption of £11,300 (for 2017/18 tax year). Any gains over and above that amount will be taxed at either 10% or 20% depending on your other income in that same tax year.

For the most part, I’d expect CGT to be the main tax applicable to gains from cryptocurrency but it will really depend on each individuals own circumstances. In fact, in some circumstances, HMRC have stated that there may in fact be NO tax due on gains from cryptocurrency.

Cryptocurrency – worth a gamble?

HMRC have already states that the taxation of cryptocurrency needs to be assessed on a case by case basis. And they have agreed that, in some circumstances, gains from cryptocurrencies may not be gains at all, but rather wins from gambling.

The logic behind this is that if the potential gain were so speculative and the individual bought in with an opportunity to both win and lose, the gains may be deemed to be more akin to gambling activity that investing. Winnings from gambling are specifically exempt from tax, therefore you may be able to make millions from cryptocurrency without being subject to any tax. Again, this will be looked at on a case by case basis, but I think it’s quite likely that a lot of gain from cryptocurrency will be put in the “gambling activity” box. Sounds great, right? Not always.

If the gains aren’t taxable…

So, not paying any tax on your gains from cryptocurrency might seems like the result you want. However, consider this. If a set of circumstances exist that mean your gains from crytocurrency aren’t taxable, the same circumstances will by default mean you losses won’t earn you any tax relief. It’s a double edged sword, and the main reason why I think HMRC may be remaining so quiet on cryptocurrency.

Let’s say you are in fact trading (per the above definition) in cryptocurrency. If you make a loss in any given year, you are entitled to carry that loss back to the previous tax year and offset it against your total income of that year. Assuming tax was paid in the previous year, you’ll be due a tax refund. HMRC don’t want to see an influx of tax refund claims and I think this is why the main message of their 2014 brief was “everything will be looked at on a case by case basis”. They want to see how things play out before refining their treatment of gains and losses from cryptocurrency. If they tax a gain on one taxpayer who has a particular set of circumstances, they will have to allow the losses of another taxpayer with the same circumstances. If they allow most gains to be deemed as winnings from gambling, then losses go the same route.

Sooner or later, the tax treatment will need to be refined and it may well take a handful of tribunals to get some generally accepted principles in place. Until then, my advice is to keep in close contact with your accountant if you make any significant gains. If you have any cryptocurrencies that have lost significant value and you don’t feel there is a realistic chance of them making a comeback, it may be prudent to sell those off at the same time you make a large gain. If you end up being liable to Income Tax, Corporation Tax or Capital Gains Tax, the losses will be offset against the gains and bring the overall tax liability down.

I expect 2018 to bring some clarity (and perhaps some controversy) to this topic. No doubt there were many that sold Bitcoin at $19,000 back in December having bought for next to nothing. It’ll be interesting to see how this plays out when it comes time to fill in a tax return (or not as the case may be).

Practice Excellence 2017 - New Firm of the Year

Adrian Markey shortlisted for Practice Excellence 2017 award

I have to say this was a most welcome surprise. The firm has been nominated for the 2017 Practice Excellence Awards in the New Firm of the Year category. For those of you unfamiliar with the awards, they are the UK’s largest accountancy awards. What’s more, we seem to be the only Northern Ireland firm shortlisted across any of the categories.

I knew from day one starting the firm that I wanted to do things differently. I wanted the firm to be far more concerned with how much it could help its clients rather than how many clients it had. I wanted clients to have total transparency over fees before I did anything for them rather than springing bills on them 18 months into the relationship. I wanted to move away from billing by the hour and “selling time”. Businesses don’t go to accountants to buy their time; they want to buy their expertise. So that’s what I sell – expertise, experience. I sell clients peace of mind, clarity and comfort. I sell their own time back to them.

Doing things differently can be a burden at time. It can create a huge amount of self-doubt and worry over whether this is the right way to do things. However, feedback from clients has always been the driving force to continuing the path I’ve chosen. It’s my North Star. The shortlisting for the Practice Excellence awards feel like further validation from people within the industry. Whilst it doesn’t hold as much sway as a “thank you” from a client, it is still very welcome. Now, more than ever, I know I’m on to something and that I’m going in the right direction.

The Practice Excellence Awards 2017 will take place on 19th October. Check out the other nominees in the New Firm of the Year category below:

Cone Accounting

The Accountancy Cloud

Soaring Falcon

Hive Business

How to Reclaim VAT on Cars

How to Reclaim VAT on Cars

Reclaiming VAT on cars has always been difficult. HMRC always argued that if a car was not “wholly and exclusively” for the business, VAT could not be reclaimed. In essence, if a company car was used to travel 1 non-business mile, a reclaim of VAT was not possible. Proving that a vehicle had not ever been used privately was difficult. HMRC has, understandably, never documented what evidence it would require in to allow such a reclaim. Whilst this still remains the case, a number of recent cases have set the roadmap to allow for VAT reclaims.

One issue these cases addressed was around the intent to use a company vehicle for personal journeys. It’s next to impossible to prove personal use didn’t/won’t happen. However, if the company takes the appropriate steps, it can show that it’s intent is that the car will only be used for business purposes. If it can do that, a reclaim of input VAT should be allowed. With £5,000 of VAT to reclaim on a £30,000 car, it’s easy to see why taxpayers are keen to reclaim and HMRC are intent on blocking them. So, what do you need to do to reclaim?

1.  Insure the car for business use only

If you only insure a vehicle for business use this is a pretty strong indicator that you only intend to use it for business. Private use would leave the company directly liable for any claim arising from a private journey. As such, it can be inferred the car is intended for business use only.

2. Instruct all potential users of the car that it is to be used for business purposes only

By informing all staff that the vehicle is for business use only it goes further to back up the intent of its use. Get employees to counter sign a declaration that they agree to the restriction of use of the vehicle.

3. Insert a stipulation in employment contracts

Further enforce point two by including a clause in the contract of employment that employees agree not to use company cars for private use. They should also agree to return pool cars to the business premises at night. In 2016, the first tier tribunal, in the case of Jane Barton, sided with the taxpayer in reclaiming VAT even though her business premises was at her home address. So even though the car was kept at her home, this also doubled as her business address an was deemed acceptable.

4. Get the paperwork right

As well as employee declarations and amendments to employment contract, a detailed mileage log is invaluable to a successful reclaim of VAT. Again, a clause could be inserted in the employment contract that employees agree to log all journeys in a mileage log. Also consider having the directors pass a board resolution restricting the use of the vehicle to business use only.

Summary

If the above points are followed, a reclaim of VAT should be allowed. It’s worth noting however, some taxpayers have won their case in the First Tier Tribunal without hitting all the above points. In 2016, Zone Contractors Ltd were allowed their reclaim of VAT even though there were no restriction to the insurance policy. There were also concerns over the credibility of the mileage logs. However, the legal and physical restrictions (stipulation in the employment contracts and requiring the vehicle to be stored at business premises overnight) were enough to side with the taxpayer.

Each case is very much decided on its own merits. However, if all the above steps are taken, there should be little or no room for HMRC to argue that the car is not intended for business purposes.

Business Tips: Restaurants, cafes and catering

I read a post on Quora recently where someone asked what the essential traits of  successful restaurants were. Many current and former restaurant owners, chefs and investors offered their advice. There were a number of common themes, as you might expect – good food, good location, good customer service, good online reviews etc. But one other answer appeared repeatedly as well that I thought was interesting; the owners must have a keen business sense.

It something I’ve talked about before – the difference between working in your business and working on your business. Back in 2008/09, shortly after the construction industry in Ireland ground to a halt, I remember dealing with quite a few queries from brickies, plasterers, joiners and electricians about setting up coffee shops, restaurants and sandwich bars. Their logic, apart from having no site work to go to, was something along the lines of “Sure, it’s just making tea and sandwiches. I can make tea and sandwiches.” But as any experienced eatery owner knows, there’s far more to it than most people realise.

With that in mind, here are my top tips for anyone thinking of starting up a restaurant, cafe or takeaway.

Partner Up

To me, this is just extremely practical. It goes back to the difference between doing the job and running the business. You might be an award winning chef and have an exceptional talent for food, but if you can’t manage staff, promote you business, keep the books and build relationships with customers and suppliers you’re sunk before the doors even open. Bringing in someone with these skills that you trust and get on with will be the difference between success and failure. Whether or not they are shareholder or a well remunerated manager is up to you, but the key is to have everyone playing to their strengths. You look after the food and your business partner can manage the business side of things.

Staffing

In most food service businesses, wages typically amount to around a third of turnover. However this can shift up or down depending on whether you operate table service or counter service, have numerous highly skilled chefs or one etc. Whatever your model, the sweet spot when it comes to staff scheduling is to have everyone busy but not to a point where they can’t cope. That, ultimately, has a negative impact on the business, the customer experience and the staff morale.

I recommend auditing your processes. From customers walking in the door until they pay and leave, what staff do they interact with? Does each person in that process need to be there or can they be the same person? I have seen restaurants before where one person takes the order and another brings it to the table (as a rule). If that’s the image of the business and that’s important to you, fine. By all means go ahead. But if you’re sacrificing profitability to do that, I think it needs to be looked at again.

Also, be careful in preparing you employment contracts or statement of terms. Agreeing to give employees 40 hours per week could leave you with idle staff on slow nights. Probation periods should also be written in to employment terms to ensure that staff that are not up to scratch can be let go before they really start harming your business.

Having said that, it’s also important to train staff. Even if they have experience, you need to show them how you expect things to be done. This will go a long way to getting staff to buy in to the concept you are creating. If staff can buy in, they should be more able to help customer to buy in and buy more.

Good training will also help staff appreciate the concept of turning tables, cross selling and up selling – all of which will help your profitability.

Orders

There is always going to be an element of waste in a food service business, but too much can be what puts you in the red. Whilst you will never be able to perfectly predict how busy you are going to be, having sound processes in place can certainly help reduce spoilage as well as supplier shortages. If practical, you should have all orders checked before you call it in to the supplier. Is what you/your chef is ordering reasonable? Too much and it will end up in the bin. Too little and your customers walk out the door. Generally, you’ll get a feel for what’s needed as time goes on. If you taking forward bookings, this can be an excellent gauge for demand.

Also, make sure you check prices before ordering. Many suppliers will update prices on a monthly or even weekly basis. So the guy that was the cheapest supplier last month may now be the most expensive. However, also be conscious that you will need to balance this with possible price breaks for volume orders, speed of delivery and quality of the produce.

Get The Stats

Designing a menu is a mix of science, art and witchcraft. Oftentimes, the chefs favourite item on the menu may be the least popular. And if that’s the case, that’s wasted real estate on the menu. Collecting the data on whats selling and what the margin is should help you finesse your menu over time and remove items that either aren’t selling or aren’t making you money. There are plenty of till systems out there that can help you collect his information. One such system that I’m a big fan of is Vend. It will not only tell you what’s selling but will also help manage stock, deliveries and even let you set up regular customer to track their history of purchases. Add and email address and an phone number and you have all you need to turn on some additional marketing to your best customers.

Get Your Costing Right

This can be difficult to get right and quite time consuming also. But it is critical. I recently posting an infographic showing the costs behind a cup of coffee. This perfectly illustrates how a high margin item can still lose money. You may find that you’re business has a 70% gross margin. Great. But if your overheads (wages, rent, rates, heating, electric etc) come to £100,000 you need to sell £142,000 just to break even.

Understanding this dynamic from day one will help you price accordingly. Quite often in food service businesses, there is quite a bit of price sensitivity from customers. Hiking prices up even 3% may be too much. The reason for this is that these are very comparable businesses in terms of price. Going back to the cup of coffee, there isn’t typically a huge price differential from one coffee shop to the next. And where there are differences, they are usually backed up by their quality.

Increasing your margin will only really happen in two ways – putting prices up or taking costs down. Again, this needs balanced with the quality of the offering, the image of the business and the customers willingness to either pay more or accept an (even slightly) inferior product.

The First 3 Questions Your Accountant Should Ask You

During a recent course I attended, the room was asked to write down the first three questions they would ask potential clients/customers to gain the greatest insight in to them.

Everyone went about quietly thinking and scribbling down ideas. I didn’t. I knew mine as I ask them to every potential client I meet straight away.

They’re not fancy questions, nor would most people (or accountants) consider them insightful. But as a means of understanding the ecosystem the client works and lives within, they give me so much information.

The three questions are:

  1. How old are you?
  2. Are you married?
  3. Do you have any children?

Most people ask these questions in casual conversation. When I ask them however, it’s a loaded question because the answers will hugely influence how I work with the client and what advice I give them. Here’s why.

How Old Are You?

Generally, I have a ballpark figure in my head for each potential clients age. However, I’m sure we’ve all offended or complimented people in equal measure by guessing this number. So, I tend to just ask.

If clients are in their 20’s or 30’s the following need consideration:

  • Is their business at a stage of profitability that they can start to provide for retirement?
  • Do they still have any student loans outstanding?
  • What are their plans for either retirement (yes, this needs considered in your 20’s and 30’s) or exiting their business? If they plan an exit, how? And what will they do after that?
  • Have they multiple income streams that can take dependancy off their business in case of a doomsday scenario?
  • Do they own their own home yet? Are they planning to build/buy? Consider Help To Buy ISA’s and LISA’s (must sign up to LISA’s before the age of 40)

If clients are 50 or over:

  • When do they plan to retire?
  • Have they been making pension contributions? Have these been sufficient to retire when they plan to?
  • Have they any breaks in National Insurance contributions that might affect how much State Pension they receive?
  • Have they any other income generating investments?
  • If they are already 65, they are entitled to an increase Personal Allowance
  • Have they prepared a will? What does it say?
  • Have they started to dispose of their estate during their lifetime? Can they start to do this, so as to bring much of their estate outside Inheritance Tax (IHT)?
  • How healthy are they? Might they (or their spouse) need to move in to a care home at some stage in the future? Ownership of assets can greatly affect how much they need to contribute to this cost.

Clients between 40 and 50 have a lot of the same consideration – pensions, retirement planning, diversifying income & investments, and estate planning (or at least giving consideration to estate planning).

Are You Married?

Again, a quick glance at the left hand might give this one away but best to ask nonetheless. If they are indeed married, the following tend to go through my head:

  • Does their spouse work? If not, can they work within business to extract a wage and use personal allowance?
  • Are there any unused personal allowances that can be part transferred?
  • If the business is a limited company, can the spouse have shares transferred to aid tax efficient cash extraction?
  • Are combined IHT Nil-Rate Bands sufficient to shelter the home house plus any other assets?
  • What’s in their will? Do all assets/business interests transfer to the spouse? Is this a good thing?
  • Do they own a home? How much is left on their mortgage? Is it practical to pay off early? Is there equity available in the property if they needed to refinance?

 

Do You Have Children?

Having kids is possibly the most important of these questions as it has huge consequences for tax and business planning:

  • What age are the children? If they are school leavers, the parents are likely going to need access to cash if they are going to college
  • Are any of the children involved in the business? Are they part of the succession plan of the business? If not, what is the succession plan?
  • Is it feasible to make children employees or shareholders in the business to aid tax efficient cash extraction?
  • Are the parents entitled to/claiming tax credits?
  • Are the parents paying registered childminders? If so, the new Tax Free Childcare scheme will be of interest to them
  • Are the children provided for tax efficiently in the will? Have the parents explored trusts as an options of providing for their children?
  • Have Junior ISA’s been set up for the children?
  • Have Child Trust Funds been set up for the children?
  • Are the parents planning any more children? Are they entitled to Statutory Maternity/Paternity Pay or Maternity Allowance? Is the business paying any SMP?

Getting Personal

When I explained to the course trainer that these were my three questions, she was somewhat surprised. I think she was worried I might offend some people by asking these personal questions right off the bat. I’ve yet to come across this.

Some might say I’d be better off asking about the business, but for the most part if a client is a hairdresser, lawyer, coffee shop, restaurant, IT consultant etc, the business model will (generally) be quite similar to every other business of that trade.

Whilst I gain a huge amount of insight in to the client by asking these questions and put myself in a better position to offer the best advise possible, there’s something more important that I gain out of this line of questioning.

I get to know my client.

Not what their business is, not how much money they make, not how healthy or otherwise their finances are. I get to know the person and what’s important to them. I connect with them on a human level. Aside from the professional insight, I am genuinely interested in them and their lives. Oftentimes when advising on someones business, you’re advising on the means by which they provide for themselves and their family. It’s a deeply important and personal thing. So whilst taxes and finances are important to both me and the client, their lives, family and happiness are far more important.

To both of us.

Business Tips: Hairdressers & Hair Salons

business tips hairdressers hair salons

Self-employed hairdressers and salon owners have a lot more to do than just cut hair. Running a hairdressing business, like any business, involves a lot more than just being able to do the job. Running a business is another job on top of that. This article won’t give any tips on extensions, blow dries or up-styles (that’s way outside the scope of my expertise). However, if you are a salon owner, mobile hairdresser or you rent a chair in a salon, here are some tips to help you run your business.

Employed or Self-Employed – the Age-Old Debate

To many, the question of whether they are employed or self-employed hairdressers seems an easy one. However, your interpretation of your status may differ to HMRC’s. By renting a chair in a salon, and deriving your income from  your takings for the week (less costs) you would expect to be classed as self-employed. However, HMRC’s test go further than this. They look at the underlying facts.

For example, if you were self employed you would be expected to be able to come and go as you please. If you only wanted to work 3 hours a day, so be it. However, if the salon in which you rent the chair expects you to be there 9-5, Monday to Friday, this is more akin to an employer/employee relationship. Additionally, if you were self-employed, you would be expected to have a “right of substitution”. That is, you can send someone in your place to carry out the job on your behalf. Even if you do explicitly have this right within the salon you operate, this mightn’t even be enough for HMRC. They prefer to see you actually using this right.

By not nailing down the detail of the engagement, there are potential consequences for both the hairdresser and the salon. The hairdresser, if deemed to be an employee, would not be allowed to make deductions for their expenses such as travel costs, equipment and chair rental fees. The salon would be liable to make tax and National Insurance deductions as well as pay Employers National Insurance. In short, it costs everybody money if it’s challenged.

To try and minimise the scope that HMRC has to challenge this relationship, have a chair rental agreement in place which outlines the mechanics of the chair rental. This will cover off issues such as working hours, rights of substitution and rental costs and should be robust enough to withstand HMRC queries, should they arise. Both parties should also take steps to ensure there is a clear divide between the two businesses such as operating separate tills, separate insurances and separate appointment diaries.

VAT On Chair Rentals

In his 2012 Budget speech, then Chancellor George Osbourne, went out of his way to make it clear that hairdressers chair rental fees are not VAT exempt. This has long been understood by most but misinterpreted by a few. By renting a chair to a stylist, a salon is not, by HMRC’s definition, supplying “a licence to occupy land” (which is VAT exempt), but rather supplying “all the facilities requisite for the carrying on by him or her of the business of a hairdresser” (which is subject to the Standard Rate of VAT). This has been the case since November 2007 after a High Court Ruling in HMRC’s favour. In some instances, hairdressers were able to use chair rental as a way to avoid registering for VAT in the first place.

In short, if you are a VAT registered salon and you are renting a chair out, you must charge VAT. If you are not VAT registered, you don’t need to charge VAT. However, check that your sales from hairdressing and products combined with chair rental fees don’t push you over the VAT registration threshold (currently £83,000).

Understand you costs

Costs can vary for each salon, hairdresser or freelancer. However they are for the most part within some narrow ranges. You product costs for example should be 7-14% of sales (depending on whether you only buy products to use on clients or resell products to client). Wages will typically be 45-55% of sales. Again this can move depending on numbers of qualified/trainee stylists. Rent will typically be 5-10% of turnover, rates  2-7% and light & heat also 2-7%.

For stylists renting chairs, your main cost is obviously going to be renting the chair. This cost is dependent on the salon owner. Some go with flat rates, some with a percentage of your takings and others use a hybrid of the two. Make sure you are clear on what the rental fee does and doesn’t cover. For example, one chair rental may seem cheap but doesn’t include products, towels or laundry costs.

Over and above chair rental fees, expect to cover travel costs, some advertising, phone bills, insurance, accountancy fees, bank charges and any professional subscriptions/affiliations.

Insurance

Insurance is one of those things you don’t need until you need it. For hairdressers, public and product liability insurance should be a must as well as professional indemnity insurance. Freelance/mobile hairdressers may need additional cover to if they are travelling to clients homes/premises. If you employ staff then also get employers liability insurance. Usually a broker can bundle these together for you for maximum cost efficiency.

VAT – Flat Rate Scheme for Hairdressers

For some salons, it may be worth considering moving to the Flat Rate Scheme for VAT. This scheme applies a flat rate percentage to your gross sales to decide how much VAT you pay over. You don’t need to calculate how much VAT to reclaim as this is deemed to be included in the percentage. For hairdressers, the rate is 13% (for the first year on the scheme this gets discounted to 12%). You are still able to claim back VAT on fixtures, fittings and equipment so long as each purchase is for more than £2,000 inc. VAT.

One of the big benefits of the Flat Rate Scheme is the time it takes to do your VAT return. So long as you have good sales records (cash book or till reports) you simply need to add these up and multiply by the flat rate percentage. In some instances this may even be cheaper than operating the normal VAT scheme. This is often the case if product sales are a very small part of your revenue.

To be eligible to join the flat rate scheme, you gross sales cannot be greater than £180,000. Once you join, you can stay on the scheme so long as your gross sales don’t exceed £230,000.

Managing Time and Money

In terms of the day to day running of a hair salon, there are a number of pieces of software out there to help manage your appointments and till. Two application I’m a big fan of are Timely and Vend.

Timely is a cloud based appointment scheduler. Aside from just letting you keep track of your appointments, it also allows online appointment booking, text message reminders and Facebook integration. It also stores all your customer information and purchase history as well as letting you set up loyalty schemes and discounts. It also has full integration with Vend…

Vend is a cloud based POS system. You set up your products and services along with prices and it records the transactions as well as emails receipts to customers. It integrates with most till hardware so you can still use your credit card machine and receipt printer. It also has a stock management component so you can keep track of inventory and reorder before you run out.

These two apps work together seamlessly and are very easy to set up and use. The big advantage, if you are a salon owner, is that you can easily see how full the diary and the till are from anywhere. Knowing this information let you schedule staff, stock replenishment and special offers much more effectively.

Both of the above also integrate with Xero’s cloud accounting platform. So your sales and stock values are automatically imported in to the software leaving you (and your accountant) with one less thing to do.

What’s in a name?

If you are just starting up your business and have decided on a name for your salon, I highly recommend you check that the name you want to use does not already have a registered trademark against it. To do this, first visit the Intellectual Property Office Trade Mark Search website. Type your proposed name in the box at the top and, under “refine search” tick the box number 44. This will search for any similar names in the same industry. If someone has already registered the name, I’m afraid it’s back to the drawing board.

This simple search could save you a lot of time and expense. Worst case is someone sues you for breaching their trade mark. Best case is you have to rename your business which also comes with a cost – changing signs, logos, marketing materials etc.

Once you have a name that no one else has registered, you should register the trade mark yourself. The cost starts at £170 then £200 per year to renew. This will stop anyone else using your name or logo and helps to protect and strengthen your brand.

 

As always, if you have any questions or queries, let me know. Or if want some additional advice or guidance on chair-rental agreements, Flat Rate Scheme or anything else, please get in touch or email me. Happy to answer all queries.

Top 5 tips for getting your tech startup off the ground

Tech startups are a personal passion of mine. I love the new. And I love to see fledgling businesses with an idea for something new going through the process of bringing that to market. For all the excitement that comes with discovering an new piece of kit or a new app and figuring out how to use it and what it does, it’s important at times to step back and become the pragmatist at times. Often, the tech startup founders have the same passion and excitement for their creation as I initially have. And just as often, they have got caught up in this excitement and haven’t given any consideration to the question of “how do we turn this product in to a business?”.

To that end, here’s my run down of the top 5 tips for getting your tech startup off the ground.

1-monetise-monetise-monetise-min

This is number one for a reason. In fact, it should be number 1, 2 and 3. An ever increasing number of tech startups build their business on the foundation of an intangible product – software, apps, services and know-how. The most early stage startups won’t even have this much. They will just have an idea. On the back of this idea, they’re hoping that some angel investor will come in and write a big cheque that will then let them go and build this idea. This very rarely happens, but where it does the problem often comes after the money has been spent. The business now has a killer app or piece of software or platform…. but no idea how to make money from it.

In today’s market, monetising software as a service or apps can be difficult. It’s an ultra crowded marketplace (especially if your app is a photo app with filters or a new P2P messaging app). So even if you do decide to go down the route of charging £0.99 per download, there’s no guarantee anyone is going to download your app.

As far as monetisation goes there are three things to remember:

  • Having and idea does not equal have a business
  • Having a product does not equal having a business
  • Having a pricing structure around your product or idea does not equal having a business

You know what equals having a business? Having money coming in. That’s it. That’s all that counts.

So please, if you take one thing from this article it should be this – spend an enormous amount of time figuring out how you are going to get people to give your startup money in return for your product. And once you figure it out, ask yourself is it achievable. It’s ok to say we’re going to charge £10/month for people to use your graphic design tool or £99 for a Bluetooth coffee machine but will people actually pay for it?

2-think-lean-min

This one should go without saying. When your starting out you need to scrutinise every penny. If all you have is £1,000 ask yourself – what is the best way to spend this £1,000? The answer probably isn’t on an executive leather chair with a heated seat. You don’t need it. What you do need is a web developer to build your website if that’s how you’re going to sell your product. What you do need is a digital marketing budget if social is where you think your first 100 customers are coming from. What you do need is more product development if customer feedback tells you it has flaws.

Startups need to be ruthless with their spending. Whatever amount of money you are going to spend on something, ask yourself – if I had to write a cheque for 100 x that amount, would I be comfortable doing it. If you wouldn’t be, it’s not essential to you getting your business where you need it to be.

 

3-keep-your-books-in-order-min

I was always going to say this. Any accountant would, but for good reason. In fact, for a number of good reasons. The first goes back to the passion that startups have for their product. This passion, whilst pretty much a prerequisite, can also stop you from seeing the facts as they stand. You may love your product and it’s branding and may have grand ideas of changing the world. That’s great. I wouldn’t expect anything less from you. But if the model is broken, this passion and energy is being wasted. If you’re burning through money twice as quickly as your getting it in or if you’ve costed your product at a margin that only gets you to break-even after 10,000 unit sales, you’re going out of business, and soon.

Another reason for keeping your books in order is that, well, you have to. If you’re operating through a limited company in particular, you need to be keeping sufficient records. HMRC will also take a poor view if they decide to visit you and you haven’t got sufficient records of money in and out.

Finally, keeping up to date with your accounts also instills an much better business mindset in entrepreneurs. It grounds them in the fundamental principle of being in business – making money. Aside from keeping on top of profits, it’s also useful to keep on top of how your assets and liabilities are moving in relation to each other. If debtors and creditors are increasing exponentially, the good news is you product or service has a market. The bad news is your startup is at risk of over-trading if you don’t find a means of properly financing the business.

4-know-your-exit-strategy-min

This might seem counter intuitive but I believe it is important to figure out as soon as possible how you intend to exit your startup. The fact is, you can’t run your business in to infinity. Whether the plan is to sell up to the highest bidder at the earliest opportunity, pass it on to the kids or make as much money in 3 years as possible then wind it down, understanding this goal from day one gives you the blueprint for how you intend to run your business. Once you have your end goal figured out, all your actions should then map to achieving this.

5-understand-the-market-min

As with any business, for your startup to really succeed you need to be the expert. You need to know everything about the sector you’re in; how it works, what it tastes like, who matters in that sector and how your product or service fits in to that sector. This goes back to monetisation. If you know what does and does not work in that market, you’re much better placed to decide whether your business can be successful there.

You also need to be crystal clear about your customers. Who are they, why do they need what you’ve got and are they willing to pay to get it? You should also understand that jut because your product may be better and cheaper than a competitors, customers won’t automatically flock to you. This goes to brand. Brand matters.

You may have developed a pair of smart running shoes that link to a smart phone app to tell you if your running technique and posture is off and how to adjust and measures your heat rate, speed and distance. Great. I’d buy that. But I’m a geek and a focus group of one. The market? They’ll ignore you and continue to buy Nike, Adidas and Reebok. Because they have the brand clout. People buy these brands without even thinking about it. Without even knowing why they’re buying them. It doesn’t matter that your product is better, cheaper, smarter, more environmentally friendly, will make you live longer and grow taller and make you more attractive to the opposite sex. So understand that the best move here mightn’t be taking on the big boys but targeting the niche and adjusting.

That’s a crude and fictitious example but shows how understanding your market can totally redirect where your business will goes in comparison to where you thought it would go.