VAT Deregistration

[AT1449]

Our nail and beauty business has been paying VAT for over a year, and we have been only approx £8k over the deregistration threshold. Recently our supervisor ( on the payroll )has handed in her notice and we expect her to take significant client base with her.Added to this another salon is opening soon very close to us. We have therefore applied to deregister on the basis that turnover will fall below the threshold in the next twelve months. We are awaiting a reply from I Rev on our application.
In the meantime there have been developments - it turns out the supervisor was leaving to join the salon which is opening soon, but on a self employed basis. They offered £x to rent a nail desk and would give her x% of takings on beauty.
We feel we can offer a much more competitive rate than them but its not in our interests to put ourselves above the threshold again.
What parts of the above proposal would count as vatable turnover for us ( IE out of the nail desk rent and the % of beauty ) and are there any key things we should do to make sure the tax authorities deem her to be fully self employed -this is what she wants to be but I know the tax authorities are starting to interpret this strictly. If she is deemed not self employed would this mean all the turnover associated with her becomes ours again and we are once again above the threshold ?
Also if I Rev agree to us deregistering on our original grounds of her leaving, do I need to reapply if we offer her a self employed deal which would keep us below the vat threshold but for different reasons than our original application ?

any help would be gratefully appreciated
thanks

[Generix]

I can't answer the question on being self employed etc. but the VATable turnover is an interesting point, I am trying to set up a similar 'avoidance' scheme for hairdressers / barbers, unfortunately these schemes have been tried in the past and HMRC are very good at arguing their case against them. Although it seems to me there is an oppurtunity, generixbanshee@hotmail.com contact me with your location and I'll see if I can come to you to see your set up etc to see if it is feesible.

[King_Maker]

For Vat purposes, I suppose the closest analogy is "Chair Rentals" in Hair Salons?

HMRC's view is that these are not Vat exempt, as (among other things) the licence to occupy is incidental to the right to use the salon's facilities - see Notice 742.

So long as it reflects reality, a correctly drafted Contract for Services may be effective to obtain Self-Employment status.

[3pic]

Poster. Be very careful here, both Revenue and Customs are well aware of hairdressing businesses 'renting' chairs to stylists who pay a weekly rent and a % of taking to the 'owner' to keep below the VAT threshold.

The Revenue will see this as an employment situation unless contracts are specifically written and the stylist can set there own fees, work own times/days, etc. Otherwise, they are not self employed, they will work for you under your terms and you will be liable for NI/tax.

TIf this nis the case, then Customs will see any revenue as your income, not an individuals and you will be liable for the VAT on such.

Generix, visit the below link for details of how such avoidance schemes are difficult to work :-
http://www.bailii.org/uk/cases/UKVAT/2006/V19851.html

It's a legnthy web page but covers almost all the scams associated with such businesses.

You can de-register as soon as you are below the threshold, it doesn;t matter why you are deregistering.

[3pic]

Poster. Be very careful here, both Revenue and Customs are well aware of hairdressing businesses 'renting' chairs to stylists who pay a weekly rent and a % of taking to the 'owner' to keep below the VAT threshold.

The Revenue will see this as an employment situation unless contracts are specifically written and the stylist can set there own fees, work own times/days, etc. Otherwise, they are not self employed, they will work for you under your terms and you will be liable for NI/tax.

If this is the case, then Customs will see any revenue as your income, not an individuals and you will be liable for the VAT on such.

Generix, visit the below link for details of how such avoidance schemes are difficult to work :-
http://www.bailii.org/uk/cases/UKVAT/2006/V19851.html

It's a legnthy web page but covers almost all the scams associated with such businesses.

You can de-register as soon as you are below the threshold, it doesn;t matter why you are deregistering.

[deebee]

There are two issues here - the 'rent' and the independence of the 'operatives'. HMRC are notoriously hard to please on the rent and unless you are simply letting out self-contained rooms, it won't work. See also the Tribunal case of Byrom and Kane T/A Salon 24 [use search on bailii.org], where rooms were let out, and exemption wasn't achieved. There was more to it in that case, but you'll get the gist of HMRC reaction. The independence might be easier to achieve as HMRC agreed guidelines with the National Hairdressers Federation re independence of hair-stylists. You may be able to purchase/beg/borrow a copy of those guidelines, which should be equally applicable to a slightly different trade.