A Lash Artists Guide to Self Assessment and Taxes

WHO Needs to Pay Taxes (in terms of earning thresholds etc)

People who are self-employed and those that have;

• Tax savings income that exceed the tax savings allowance
• Dividends that exceed the dividends allowance - Company Directors
• Other untaxed income such as property income - Landlords
• Have a capital gain - Making a profit after Selling something that has increased in value 
• A business partnership
• High Income Child Benefit charge
• Tips to declare
• Foreign Income

The most common reason in the UK lash industry to complete a tax return is to report income, high income benefit charge, declaring tips and foreign or other income such as income from youtube and gifts. 

INFLUENCERS NOTE:

Influencers should keep a log of gifts received, nature, value and context they were provided, which will help determine if this needs to be declared as income to HMRC. On the flip side of this, where a business owner is gifting something to an influencer this may potentially be deemed an allowable business expense.

The process of collecting tax on the above sources of income is called Self Assessment. HMRC uses self assessment to collect direct tax in the UK. This tax is not the same as other taxes such as PAYE, some national insurances (a tax paid by employees and employers) or VAT which is a self administered tax.

When starting a new business HMRC requires you to register with HMRC as soon as possible after starting the business, but will not issue a penalty as long as the registration takes place by 5 October following the end of the tax year. So a business owner that starts to trade in the current 2024/25 tax year (06 April 2024 to 05 April 2025) will need to register their business by 5 October 2025.

NOTE: If you started your business in the last tax year 2023/24 (April 2023 - April 2024) then you must register by 5 October 2024.

When trying to understand how tax is calculated people often forget about the personal allowance that is available to them. 

Profits generated after the personal allowance (currently £12,570) are then charged to tax. This is better demonstrated in the below chart from HMRC.

Source:gov.uk 

You must still register for self assessment even if the income you received is below the personal allowance.

However, if you have property or trading income during the tax year that is below £1,000 you do not have to register for self assessment but you may wish to do so if your expenses are above £1,000 to ensure you do not miss out on any tax relief. 

Whilst I see this suggested a lot within the beauty industry, you should speak with a professional before deciding whether to use the trading allowance. 

Where to go to Set Up Business etc

To register your business you can use the support of an accountant or can manage the registration process with ease via GOV.UK. 

You can now check online to see if you should register for self assessment. This form from HMRC will ask you a few short questions before taking you through the registration process.

https://www.gov.uk/register-for-self-assessment

Ensure to set up your online business tax account and register for email updates to help manage deadlines and tax payments. 

When you register for self assessment you will receive the following information that you must keep safe as you will need these references to manage your tax affairs, submit tax returns and to speak with HMRC. Losing this information can create issues in getting into and managing your account and taxes;

• Gov Gateway ID (and password)
• Unique Tax Reference Number (UTR)

You can use Gov.uk to log into and manage your tax account or there is also an app available.

What to Keep Track of and How (income outgoings etc)

It is important to keep up to date records of all business income and expenditure. You can be charged a penalty of up to £3,000 for not keeping correct accounting records.

By maintaining accurate records you will reduce the risk of interest and penalties from HMRC. 

For more support on this, Ria-Jaine holds accounting records webinars and lives so make sure you follow her on instagram! (click here)

Self employed businesses are required to keep accounting records for at least 5 years and ten months after the end of the tax year in which they relate to.

It is important to also increase your knowledge on allowable expenses so that when you are tracking the business income and expenses you can obtain tax relief for the business purchases that you make. If in doubt about whether an expense is allowable for tax always go back to the Wholly and exclusive rule from HMRC. This means that if an expense is wholly and exclusively for the purpose of the trade then it will most likely be allowable. 

Some purchases that are not always allowable expenses include travel to the salon, lunch, clothing and footwear, childcare and training costs! Be careful that you understand how to correctly reduce your tax bill by brushing up on the knowledge of allowable expenditure. 

Check out this handy Allowable Expenses eBook and Webinar that has helped many lash techs!

Records for the 2023/24  tax year must be kept until 31 January 2030. 

You may in some circumstances be required to keep your accounting records for longer, if the tax return was submitted late or HMRC open an enquiry.

There is no set format to keep this information for sole traders at present but using online bookkeeping software and receipt capture tools will help to keep this data in a reasonable order without having to keep bags of receipts and paperwork. Making Tax Digital is also coming into play in the next 2 years which will change this slightly. 

It is recommended to gather paperwork at least once a month. We hold accountability sessions each month for business owners just like you to track and monitor the business accounting records. 

Key Dates in the Tax Year

• Tax Year - Runs 6 April to 5 April each year
• Accounting records - Keep 5 years and 10 months after the tax year they relate too
• Tax Return Submission Deadline - 31 January after the end of the tax year
• Tax Registration Deadline - by 5 October following the end of the tax year
• Tax Payment Deadline - Generally there are two dates to consider when it comes to paying self assessment income tax;
• Tax is paid in two stages through self assessment. 

• Two Payments On Account(POA) for the tax year calculated at 50% of the tax from the previous year.
  POA1 - deadline 31 January in the tax year
  POA2 - deadline 31 July in the following tax year  
• Balancing payment after submitting the tax year

Once the tax return is submitted and it is known exactly how much tax is due to HMRC after deducting the payments on account, a balancing payment is required to pay the difference.

If the tax due to HMRC is less than £1,000 you will not need to pay a payment on account. An unexpected payment on account catches a lot of people out especially with the first tax return.

Top Tips for Self Assessment 

• Do not wait for the 31 January deadline before submitting the tax return. This can be done as early as April and once the tax return has been issued by HMRC. 
• Penalties and interest will apply for late submission and late payments.
• Submitting a tax return early will give you the opportunity to create a payment plan for tax, or where profits have reduced will help in potentially reducing or removing a payment on account. 
• Schedule an admin day but call it success day each month to monitor your income and expenses, to update your bookkeeping and to use the information to make business decisions. Nobody would want to miss a Success Day, it is a crucial part of running a business to check cash flow and to plan and steer the business in the right direction. 
• Technology is your friend when it comes to managing and tracking business income and expenses. HMRC recognises this and in 2026 will be rolling out the Making Tax Digital plans to make it easier for business owners to stay on top of their taxes. You should reach out to an accountant to assist you with the timelines, software and process to help you navigate this.

https://www.gov.uk/guidance/check-when-to-sign-up-for-making-tax-digital-for-income-tax

• If lashing is a side hustle or in start up stages and you have PAYE income you may have the option to have your tax collected via PAYE. You will still be required to submit a tax return but it may make it easier to manage the tax payment. There are a few things to consider before opting for this route so do speak with an accountant.
• When looking for an accountant seek out an accountant that understands the industry, this is especially important when dealing with VAT or PAYE as there are a few structures of schemes available that suit the lash industry better.

SALON OWNERS

If you are working in a salon, ensure that you determine the status for both Employment Right and Tax Status. This is a huge area in the industry that is currently creating a lot of risk for salon owners and lash artists. If you want to check your own or a workers status for tax you can do so here 

https://www.gov.uk/guidance/check-employment-status-for-tax

This is not to be confused with employment status for employment law - check this further with a HR specialist to ensure any contracts are clear and correct. This is huge area that we won't go into here but is something that those in the lash industry need to be aware of.

When maintaining accounting records, ensure to be monitoring the VAT threshold. This is currently £90,000. There is a huge misunderstanding that this is tracked at the end of the tax year. The threshold is actually tracked on a 12 month rolling basis, so at the end of every month you should be counting back 12 months to see if income has hit the threshold. If it does seek VAT advice immediately or even better get started planning for VAT in advance when rolling income is around £60,000. This is also another reason to set up a real time bookkeeping system so that you can quickly and easily track these thresholds.

If you are struggling to pay your taxes do not bury your head in the sand, HMRC do consider time to pay plans and the sooner this is communicated to HMRC the better. More information on this can be found here https://www.gov.uk/difficulties-paying-hmrc

For help discussing any of the above you can book a free call back from myself via the following link

If you would like to jump straight into doing your tax return independently please see also this Tax Return 3 Part Bootcamp that is available for replay until October 2024 when it will then be added to The Beauty Accountant Academy.