CROSSING THE VAT THRESHOLD.

Crossing the VAT Threshold: What I Learned as a Salon Owner and My Advice for Thriving

Running a hairdressing salon was one of the most rewarding experiences of my life. It was my dream business – a space where clients felt beautiful and confident, and where my team of chair renters could build their own careers. I never expected to face the challenges that came when my salon crossed the VAT threshold, but looking back, I learned so much from the experience.

Important to get it right.

I’ve since sold my salon, but I want to share my story – and what I learned – to help other salon owners navigate the tricky waters of VAT registration. If you’re facing this situation, there are ways to thrive, and I hope my journey offers some inspiration and advice for managing the transition.

How I Crossed the VAT Threshold

When I first opened my salon, everything was straightforward. I rented out three chairs, which covered all the expenses – rent, utilities, products – leaving me a good living from my own client work. For years, this simple model worked perfectly. I wasn’t looking to grow rapidly; I wanted to run a sustainable business and enjoy my work.

Then the energy crisis hit, and everything changed. My electricity direct debit went from £160 a month to a shocking £1,700 almost overnight. Suddenly, the overheads that were once manageable became a huge financial strain.

To stay afloat, I had to make some tough decisions. I increased the daily chair rental fee by £10 and took on a fourth chair renter to spread the costs. These measures helped in the short term, but they also pushed my turnover above the VAT threshold of £85,000.

Crossing the VAT threshold might sound like a milestone of success, but for small businesses, it can feel like a penalty. I now faced paying 20% VAT on my takings, including chair rental income, which significantly cut into my profits.

What I Learned – and What I’d Do Differently

Navigating VAT registration wasn’t easy, but it taught me a lot about running a small business and thinking creatively. While I eventually chose to sell my salon (more on that later), here’s the advice I’d give to any salon owner going through a similar experience:

1. Apply for the Flat Rate VAT Scheme

This was the first thing my accountant suggested when I registered for VAT. Under the Flat Rate Scheme, salons pay a fixed 13% VAT on their total turnover instead of the full 20%. It simplifies bookkeeping and reduces your VAT liability, which can make a huge difference. If you’re not already using this scheme, it’s definitely worth exploring with your accountant.

2. Be Transparent With Price Increases

Raising prices is often unavoidable, but it’s essential to do it thoughtfully. Be honest with your clients about why prices are going up. Many people are aware of rising costs and will appreciate your transparency. Pair this with a focus on exceptional service – it’s the little touches, like complimentary refreshments or a warm, friendly atmosphere, that can justify a price increase.

3. Streamline Operating Costs

When faced with the VAT burden, every cost-saving measure counts. Review your expenses regularly, from product suppliers, waste collection, and refreshments to energy usage. Small changes – like switching to energy-efficient lighting, turning the heating down and using a timer or unplugging equipment when not in use – can add up over time.

4. Rethink the Business Model

One thing I wish I’d considered earlier was moving away from chair rentals and hiring employees instead. Chair rental income counts towards your turnover, but staff wages are a business expense and don’t. While this model comes with payroll responsibilities, it could help you stay below the VAT threshold or better manage your income if you’re already registered.

5. Rent Out a Beauty Room or Brow/Nail Bar

If you have extra space in your salon, consider renting it out to beauty professionals like nail technicians, brow artists, or massage therapists. Unlike chair rentals, which add to your turnover, renting out a beauty room often works on a fixed monthly fee and doesn’t necessarily impact your VAT threshold. Plus, it can diversify your salon’s offerings and attract more clients.

6. Diversify Revenue Streams

Retailing products – like professional shampoos, conditioners, or styling tools – can be a great way to boost income. While these sales are VAT-inclusive, the extra profits can help offset the costs. Similarly, offering workshops, subscription packages, or even hosting events can create new income streams to keep your business growing.

The Decision to Sell

Eventually, my lease came up for renewal, and I realised it was time for a change. After years of hard work, I was ready to retire, and managing the complexities of VAT registration no longer felt like the right path for me.

I sold the salon on a fixtures and fittings basis, which allowed the new owner to start their business from scratch without being VAT registered. With just three chair renters, they could stay under the threshold and build the salon on their own terms. It was the perfect solution – a fresh start for them, and a peaceful retirement for me.

Advice for Salon Owners Going Forward

If you’re running a salon and find yourself nearing or crossing the VAT threshold, don’t panic. Yes, it’s challenging, but there are ways to thrive:

• Stay informed. Work closely with your accountant to understand your options and create a financial plan.

• Adapt your business. Whether it’s adjusting your pricing, switching to an employee-based model, or diversifying your services, small changes can make a big difference.

• Utilise your space. If you’ve got unused rooms, turn them into opportunities. Renting out a beauty room or creating a brow/nail bar could provide stable income without adding significantly to your VAT liability.

• Lean on your community. Other salon owners have likely faced the same struggles. Connect with local networks or online forums to share advice and ideas.

For me, selling the salon was the right choice. But looking back, I’m proud of everything I accomplished and grateful for the lessons I learned along the way. Running a salon is a labour of love, and while it comes with challenges, it’s also an incredibly rewarding journey.

To all the salon owners out there: keep going, keep learning, and know that even the toughest hurdles can be overcome with a little creativity and resilience. You’ve got this.

Kindest regards,

Sally Delandro