As a freelance hair or beauty professional, or a salon owner, it can be challenging to handle accounting and attend to your clients at the same time. However, practising proper accounting means you’ll have control over your finances, allowing you to make solid plans about future goals. 

This is the self-employed hairdresser or beauty salon owner’s complete guide to bookkeeping and accounting. We’ll cover:

  • Difference between bookkeeping and accounting
  • Accounting terms you need to know
  • Accounting documents for beauty salons and hairdressers
  • Proper accounting procedure
  • Business expenses hair and beauty professionals can claim

Accounting for hair and beauty businesses

No matter the size of your business, accounting is something you can’t ignore, or else you could create money problems over time. However, there’s a difference between bookkeeping and accounting, as explained below.

Difference between bookkeeping and accounting

Bookkeeping is the foundation of accounting and involves tracking and recording your daily financial transactions. You also use this information when preparing your financial statements, which we’ll explain in more detail later in this article.

Accounting analyses your bookkeeping data to uncover important information that helps you determine how your business is doing financially. 

Accounting terms you need to know

There are a few terms you should know to help you manage your bookkeeping and accounting as a self-employed hairdresser, beautician or beauty salon owner:

Revenue, income and expenses

Your income is the total amount of money your business makes. Revenue is the total income you generate from providing your hair and beauty services.

While most of your income as a freelancer or small business owner will likely come from revenue, there are other sources of income that could be worth looking into. 

  • Dividends (profits you distribute to shareholders in your company)
  • Investments (stock or bonds)

Your expenses (or expenditure) means the total cost your company spends to keep the business going.

Assets, liabilities, and equity

Your assets refer to resources that your business owns, such as company vehicles or the salon space. Liabilities refer to what your business owes, such as loans. Equity is how much your company is worth after paying your expenses, liabilities and taxes.

Accounts payable and receivable

Accounts payable is money you owe to other companies or individuals for unpaid invoices, loans, and dividends. 

On the other hand, accounts receivable is the total amount of money owed to your business by customers who have purchased products or services on credit.

Accounting documents for beauty salons and hairdressers

There are also some financial documents that you need to fill in and send to HMRC. These include:

Balance sheet

This refers to your business’ financial statement, including its assets, liabilities and equity. 

Income statement

The income statement (also known as the profit and loss statement) shows your total revenue and expenses within a particular time frame. This spreadsheet is crucial as it measures your business performance over a specified period.

Cash flow statement

Cash flow is the movement of money in your business, whether physically or virtually, in a specified period. Cash inflow is the money you bring into your business, and outflow is the money that leaves it.

Proper accounting procedure

We’ve listed some actions that will help you manage your bookkeeping and accounting efficiently.

Register your business with HMRC

Whether you’re a freelancing hairdresser or beautician or the owner of a salon, you need to register your business with HMRC (HM Revenue & Customs). You have to register as soon as your income (not profit) goes over £1,000 during a tax year (the tax year runs from 6th April to 5th April). The deadline to register your business is the 5th of October after the end of the tax year you went over the £1,000 threshold.

You can set yourself up as a sole trader, limited company or as a partnership. Note that limited companies and partnerships generally involve more admin and reporting, meaning you’ll probably need to hire an accountant.

Open a business current account

As a sole trader, you don’t need to have a separate bank account for your business. However, suppose you own a hairdressing or beauty salon (a limited company). In that case, you’re legally required to set up a business current account.

Even as a freelancer, opening a business account will help you manage your finances more efficiently. You won’t have to sort out which expenses are personal and business-related.

Having a business account as a sole trader shows professionalism. Some clients may not like making payments to a personal account because they think it looks unprofessional and unsafe. A business account helps overcome that barrier.

When you sign up for a Countingup business current account, you get free built-in accounting software that automates the time-consuming aspects of bookkeeping and taxes.

Decide on a bookkeeping method

The next step is deciding which bookkeeping method you should use. Whichever method of accounting you choose, you must use it consistently year to year. Your options are:

Cash accounting

When using this method, you only record incomes and expenses after the transactions are made. Cash accounting is simple, which is why hairstylists and salon owners tend to prefer it.

Accrual accounting

In this method, you record expenses and income any time a transaction is carried out, whether you’ve received cash for it or not. While it’s not the most straightforward method, it provides more accurate information since you can calculate and record transactions as they happen.

Hybrid accounting

The hybrid method combines the accrual and cash methods of accounting. You might use the cash method to account for your business expenses and the accrual method to account for inventory held for sale.

Track all your income and expenses

Once you’re set up as a self-employed hairdresser, you must keep up to date with your bookkeeping. The best way is to make bookkeeping a habit and track how much you earn and spend each day. 

You can do this manually using a spreadsheet, or you can use an app that will make the process faster and simpler. The business current account and accounting software, Countingup, automates expense categorisation and makes recording expenses easy with its receipt capture tool. You can make updates on the go, while the app logs your business transactions automatically.

Business expenses hair and beauty professionals can claim

Now that we’ve explained how to make your bookkeeping easier, we also want to help you save your hard-earned pennies wherever you can. Below we’ve listed the main expenses you can claim back from HMRC.

Materials and equipment

As a hairdresser or beautician, you know how important it is to have the right tools of the trade. You can claim essentials like scissors, shampoos and hairdryers, plus specialised colouring and styling equipment, on your Self Assessment tax return.

If you’re a self-employed hairdresser, you’ll probably own a considerable amount of kit so you can offer as many different treatments and options as possible to clients. You can claim back the purchase cost and the costs of repairing, replacing or upgrading the items. Make sure you keep the receipts! You’ll need them for your tax return.

Training

As you know, hair and beauty is an ever-changing industry and staying on top of new trends is key to staying relevant to your clients. Thankfully, you can attend training sessions or complete courses directly relevant to your business and claim the tax back as a business expense.

Insurance

Hairdressers and beauticians work with a lot of hazardous chemicals (bleaching products), sharp objects (scissors) and electrical equipment (hairdryers or UV nail lamps). Having insurance will protect you in case an accident happens to either yourself or your client. Insurance you can look into includes:

  • Public liability insuranceif someone gets injured or their property gets damaged as a result of your beauty therapy business.
  • Tools insurance – in case something happens to one of your tools.
  • Stock insurance – if something happens to products you keep in stock.
  • Personal accident insurance – in case you have an accident yourself.

Keep your insurance documents in a safe place in case you need them. These papers will also come in handy if you need to prove your expenses at any point.

Chair fees

Some self-employed hairdressers and beauticians choose to rent a chair in a beauty salon instead of driving between clients’ homes. If this is you, then you can claim the cost back as a business expense. 

Side note: Remember that chair rental agreements vary from salon to salon, so make sure you understand the terms and conditions before signing anything. Some salons take a percentage of your earnings, so it’s vital to keep accurate records.

Travel expenses

If you’re a self-employed hairdresser travelling from client to client, you can claim certain travel expenses on your tax return. There are several different transport options on which you can claim expenses, including:

  • Public transport
  • Driving your own car
  • Being a passenger in another person’s car

However, you can only claim it if the journey is for work. 

If you tend to mix personal and professional journeys, you must only claim for the miles undertaken for work purposes. The easiest way is to write down the business-related mileage on your phone or notepad as soon as you complete the journey. 

You can make claims for travel expenses on a per-mile basis, for which HMRC will let you claim on:

  • 45p per mile for the first 10,000 miles
  • 25p per mile when you go over 10,000
  • 24p per mile if you drive a motorcycle

Clothing and protective equipment

If you wear a uniform (ordinary clothing doesn’t count) while working, you can claim back the cost as a business expense. In the post-Covid-19 working environment, you can also claim back the cost of any PPE or other protective items you need to do your job.

Additionally, you can claim back the cost of laundering your uniform and other work-related items like towels and capes. Check how much you can claim on the HMRC website.

Utilities

If you use your WiFi or mobile phone for work, you can claim the costs against your tax bill. However, you can only claim back the portion you used for business purposes. 

If you operate out of your own home, you can claim back utility costs relating to your business. For example:

  • You have four rooms in the house and you use one for client appointments
  • Your electricity bill for the year is £800 for the whole house, and each room uses an equal amount of electricity
  • You can divide the bill by four to claim £200 as an allowable business expense

If you work from home at least 25 hours a month, you can use simplified expenses, a standard monthly rate calculated by HMRC.

Professional expenses

Are you a member of a professional society like the National Hairdressers’ Federation or an institute such as the Hairdressing Council? In that case, you can include your membership costs as business expenses (as long as HMRC approves the organisation or institute).

Marketing or advertising

If you wish to invest in a website and maybe even some Google Ads to spread the word about your hairdressing business, you can claim the cost on your tax return. Claimable items include hosting, domain name, registration, and website maintenance.

Accountancy fees

Many hairdressers and beauticians choose to hire an accountant to handle their finances and to co-develop a business plan that will help their businesses grow. You can include the accountancy fees as a business expense. 

Make your accounting simple with Countingup

With Countingup, you can apply for a business current account with free built-in accounting software online in minutes. It automates the time-consuming aspects of financial admin, saving thousands of UK business owners time and money. Find out more here

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