“One of the biggest mistakes I see is waiting until you’ve already exceeded the VAT threshold before thinking about what it means for your business.  By then, decisions often have to be made quickly, which can put unnecessary pressure on you and your cash.

Instead, start planning early.  If your turnover is increasing, review your figures regularly so you know when you’re likely to reach the VAT threshold.  This gives you time to put together a strategy that protects your profits and avoids any nasty surprises.

One of the most important decisions is choosing the right VAT scheme. There isn’t a one-size-fits-all approach, and the scheme you choose can have a significant impact on your profitability.  Many salons initially consider the Flat Rate Scheme because it appears simpler. However, if you’re on the Flat Rate Scheme, you generally can’t reclaim the VAT on your day-to-day business expenses, such as products, equipment, software subscriptions and accountancy fees.  For salons with high levels of VATable purchases, the standard VAT scheme is often the more beneficial option.   Your accountant should calculate which scheme is likely to leave you better off before you register.

Planning ahead also gives you time to think about your pricing.  One of the biggest mistakes I see is salon owners becoming VAT registered without increasing their prices.  If you absorb the VAT yourself, you’re effectively taking a pay cut because the VAT has to come out of the money you were previously keeping as income.  In many cases, I recommend planning for VAT well before registration and gradually building it into your prices from the outset.  This makes the transition much easier for both you and your clients.

I often describe the £90,000 to £120,000 turnover range as the ‘danger zone’.  Once you reach the VAT threshold, you’ll start paying 20% VAT on your sales, but until your prices catch up, that VAT has to come out of your profits.  Many salon owners find they are working harder, turning over more money, yet actually taking home less. Once your turnover continues to grow beyond this point, the increased volume of business usually offsets the impact of VAT. The key is having a plan to get through this period without sacrificing your income.

Most importantly, don’t let VAT become a barrier to growth.  If your salon is consistently getting busier, that’s a sign your business is succeeding. Turning away profitable work simply to stay below the threshold can often cost you far more than becoming VAT registered.

With good advice and forward planning, VAT becomes something you manage—not something you fear.  It should be viewed as another milestone in your salon’s journey, not the point where growth has to stop.

If you think your salon may be approaching the VAT threshold, now is the perfect time to start planning.  Understanding the different VAT schemes, choosing the right one for your business and having a pricing strategy in place before you register can save you thousands of pounds and help protect your profits as your salon continues to grow.