As a health and beauty professional, whether you’re a self-employed hairstylist, makeup artist, massage therapist, or nail technician, it’s crucial to understand your tax obligations. If your craft is your primary source of income, you’ll need to register your business and ensure you pay income tax.
But don’t worry—there’s no such thing as a “beauty tax,” and with the right approach, you can minimise your tax bill by taking full advantage of allowable expenses. This guide will break down everything you need to know, from defining business expenses to uncovering lesser-known deductions that could save you money.
Why Understanding Tax Matters for Beauty Professionals
Imagine this: Chloe, a self-employed makeup artist, earned £30,000 last year. She assumed her entire earnings were taxable and ended up with a tax bill that left her stressed. After consulting with an accountant, she learned she could deduct expenses like makeup supplies, travel for bridal bookings, and salon chair rent. By claiming £8,000 in allowable expenses, she reduced her taxable income to £22,000 and saved thousands on her tax bill.
This is why understanding your tax obligations and deductions is essential—it ensures you keep more of your hard-earned cash.
What Is an Allowable Expense?
Allowable expenses are costs that are wholly and exclusively incurred for the purpose of running your business. As a beauty professional, many of your day-to-day expenses are directly tied to your work, and understanding what qualifies can significantly reduce your taxable income. Here’s a breakdown of common allowable expenses in the beauty industry:
- Tools and Equipment: Items like hairdryers, clippers, brushes, scissors, or premium makeup kits used exclusively for your clients are deductible. These tools are essential for delivering your services, making them legitimate business expenses.
- Salon Space Rent or Chair Rental Fees: If you rent a chair in a salon or lease a workspace, the costs associated with the rental can be claimed as a business expense. This includes any additional fees for utilities or maintenance, provided they’re part of your workspace arrangement.
- Training Courses: As a professional, staying up-to-date with the latest trends and techniques is vital. The cost of training courses, workshops, or certifications that enhance your skills or knowledge in your field is deductible. For instance, a course on advanced hair coloring techniques or a certification in skincare treatments would qualify.
- Professional Insurance: Coverage such as liability insurance, treatment-specific insurance, or income protection insurance is essential to safeguard your business. These premiums can be claimed as allowable expenses since they directly support your professional operations.
- Travel Expenses for Mobile Appointments: If you provide mobile services and travel to clients’ homes or venues, the costs associated with transportation are deductible. This includes mileage if you use your car, public transport fares, or even parking fees incurred during business travel.
Example in Action: Suppose you buy a premium set of makeup brushes for £300, and they’re exclusively used for your clients. This is an allowable expense because the purchase is wholly tied to your business. However, if you purchase a £200 skincare set for personal use, it doesn’t qualify, even if it’s related to beauty—it must be strictly for professional use to count.
Action Point: To avoid any confusion, always keep receipts and maintain clear records of your expenses. Separating personal and business purchases is crucial for staying compliant and maximizing your deductions. A tax professional can help you identify grey areas and ensure you don’t miss out on any legitimate claims.
How to Calculate Your Taxable Income
Calculating your taxable income is an essential step to understanding how much tax you owe at the end of the tax year. It involves subtracting your total allowable expenses from your turnover (total earnings). Here’s a detailed breakdown, complete with an example:
- Determine Your Turnover: Your turnover is the total income you’ve earned from your business activities before deducting any expenses.
- Subtract Allowable Expenses: Allowable expenses are costs directly related to running your business. These can include rent, supplies, marketing, insurance, and other qualifying expenditures.
- Calculate Taxable Income: Once you subtract allowable expenses from your turnover, the remaining amount is your taxable income.
Understanding UK Tax Rates (2023/24):
- 0% on the first £12,570 (personal allowance)
- 20% on income between £12,571 and £50,270
- 40% on income above £50,270
Additionally, if you’re self-employed, you’ll need to consider National Insurance Contributions (NICs),
Who pays National Insurance Contributions (NICs): All self-employed individuals with annual profits above the Small Profits Threshold, which is £6,725 for the 2024/25 tax year.
How Much: A flat weekly rate of £3.45 per week. This works out to approximately £179.40 per year if your profits exceed the threshold.
Why It’s Important: Paying Class 2 NICs contributes towards your entitlement to certain state benefits, including:
- State Pension
- Maternity Allowance
- Bereavement Support Payments
If Your Profits Are Below the Threshold: You don’t have to pay Class 2 NICs, but you can opt to pay them voluntarily to protect your entitlement to state benefits.
Keeping accurate records of income and expenses throughout the year will make this calculation much smoother and ensure you claim all eligible deductions.
Action Point: For personalised advice or help with tax preparation, book a free consultation with BM & C Accountants.
Common Tax Deductions for Health and Beauty Professionals
As a health and beauty professional, you might be eligible for a range of tax deductions that can significantly reduce your taxable income. Here are some everyday expenses that you may not have realised are deductible:
- Uniforms and Workwear: If your work requires you to wear specific clothing, such as branded uniforms, aprons, or protective gloves, the cost of purchasing, cleaning, and maintaining these items can typically be deducted. However, this doesn’t extend to general professional attire, like business suits or everyday clothes, even if worn at work. To qualify, the clothing must be essential to your job and unsuitable for regular wear outside of your professional duties.
- Products for Demonstrations: Any items purchased exclusively for demonstrating your skills or providing services to clients may be deductible. For instance, makeup used in tutorials, hair products for client treatments, or skincare products for consultations fall into this category. To ensure eligibility, keep these products separate from personal use items and maintain detailed purchase records.
- Marketing and Website Costs: Promoting your business is an essential part of attracting and retaining clients, and the costs associated with marketing efforts are deductible. This includes expenses for Instagram or Facebook ads, sponsored posts, branded materials like business cards, and the setup and maintenance of a professional website. Even subscriptions to design tools like Canva or online courses on digital marketing related to your business can qualify.
- Home Office Expenses: If you operate your business from home, you can claim a portion of your household expenses, such as rent, utilities, internet, and even cleaning costs. To qualify, you must have a dedicated workspace used exclusively for your business. The portion you
Expenses You Can’t Claim
When preparing your taxes, it’s crucial to understand that not all expenses are deductible. While many costs associated with running your health and beauty business can reduce your taxable income, others are considered personal or non-qualifying by tax authorities. Here are some key examples:
- Personal Grooming Products: While it might seem logical to deduct expenses for makeup, skincare, or hair products you use daily, these are generally considered personal expenses. Even if you work in beauty, items like foundation, moisturiser, or shampoo used for your personal upkeep do not qualify. However, if a product is purchased specifically and exclusively for client use—such as makeup applied during services—this may be deductible. Ensure you keep detailed records and separate personal from professional use.
- Client Gifts Without Branding: Giving gifts to clients can build goodwill, but not all gifts are deductible. For example, a box of chocolates or a bouquet of flowers without any branding (like your salon name or logo) typically isn’t considered a business expense. To make gifts deductible, ensure they clearly promote your business or fit within specific tax guidelines, such as staying under the monetary limits for client gift deductions in your region.
- Meals and Drinks: While meals and drinks are sometimes deductible, they must directly relate to your business to qualify. Casual meals at your favorite café or snacks for your personal enjoyment do not count. However, if you’re traveling for business—such as attending an industry conference—or hosting a client for a meeting over lunch, those meals may be partially or fully deductible. Be sure to keep receipts and document the purpose of the expense.
Remember, claiming non-deductible expenses could raise red flags during an audit and potentially lead to penalties. To avoid mistakes, consult with a tax professional who understands the unique needs of health and beauty professionals. They can help you navigate gray areas and ensure you’re claiming only what’s allowed.
Keeping Track of Your Expenses
Accurate record-keeping is key to claiming the maximum allowable expenses. Use digital tools like QuickBooks or Wave to track your income and expenses throughout the year. And while you’re not required to submit receipts with your tax return, you’ll need them in case HMRC asks for evidence.
What Happens If You Get It Wrong?
Tax preparation doesn’t have to be daunting. By understanding allowable expenses, keeping accurate records, and seeking professional advice, you can save money and focus on doing what you love—making people look and feel amazing.
With that said, it is important to note that claiming ineligible expenses or failing to report income correctly can result in fines or interest on unpaid tax. To avoid costly mistakes, it’s wise to consult an accountant who specialises in health and beauty businesses.
Not sure where to start? At BM & Co Accountants, we specialise in helping health and beauty professionals manage their taxes. Contact us for a free consultation, and let us help you maximise your savings.