Autumn budget 2018 – the pros and cons for the salon owner

The Autumn Budget 2018 stated that 'austerity is coming to an end - but discipline will remain' and that there could be a 'double deal dividend' if the Brexit negotiations are successful. Hair and beauty consultant Ryan Fox cautions that although this is relatively good news it's a case of celebrating with prosecco, rather than champagne. Here he explains the pros and cons of the Autumn Budget for the salon owner. Good for the Salon Owner

• Business rates for firms with a rateable value of £51,000 or less to be cut by third over two years. This is great news for salons as most will get a saving of thousands of pounds. Check with your local authority how much you will save and when.
• The contribution for small companies to the apprenticeship levy is to be reduced from 10% to 5%,. That's good news for an industry that relies heavily on apprentices for its future growth.
• The personal allowance currently £11,850, will rise to £12,500 from Apr 2019 and the higher rate threshold to £50,000. This means salon owners and stylists get to keep more of their money before they pay tax.
• Corporation Tax rates will remain at 19% in 2019 and fall to 17% in 2020. So salons who are set up as companies will pay less tax.

Bad for the Salon Owner

• With unemployment so low and a shortage of stylists, workers are calling the shots more and therefore wages are increasing. National Minimum Wages and National Living Wages rise again from Apr 2019 to the following rates: Apprentice £3.90, Under 18 £4.35, 18 to 20 £6.15, 21 to 24 £7.70 and 25 and overs £8.21.
• Changes to IR35 affecting self employed workers are aimed at large and medium sized organisations at this stage but are sure to filter down to small businesses eventually. This gives another reason to have an employed staff model rather than a self-employed model.
• The Dividend Allowance is now only £2,000 and is likely to disappear from 2020. This means that a salon owner who takes dividends to top up a low salary will now pay 7.5% (over the £2,000) of it in tax a basic rate taxpayer, 32.5% as a higher rate taxpayer and 38.1% as an additional rate taxpayer.
• New making tax digital requirements will start to apply from Apr 2019 starting with VAT payments. Businesses including salons over the VAT threshold will have to keep digital records for VAT purposes.

What to do

• Ensure your numbers are right and that your salon is set up for profit. Then make sure your stylists are aware of how to take all the opportunities that are presented to then by each client. Clients are less habitual than they used to be and they have to be impressed to keep them loyal.
• You should increase your prices at least in line with inflation (2-3%) and make sure they are enough to pay the new wage rates from Apr 2019 and higher rates for more senior team members. With so many jobs available and so few stylists around, you need to make your salon a more attractive place to work. Wage rises may be difficult for you at the moment, but it’s good news for your team, so turn that one around.
• Speak to your accountant about how the digital vat changes affect you (you may need to start using some additional computer software) and ask them to look at more tax efficient uses of profits by reinvesting in your business or saving into a pension scheme for example.
• Why not throw a little party (prosecco not champagne!) to celebrate the little wins for both you and your team. Well, any excuse for a party!

Ryan Fox is a hair & beauty salon consultant who improves salon performance through training and innovation. He also offers an accountancy service specifically designed for salons. For more advice on growing your salon or his salon accountancy service visit www.umbrellaconsulting.co.uk