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14 November 2017
VAT treatment of tips for a hairdressing business.
I have a client who trades through a limited company and runs a unisex hairdressing salon. He has just advised me that a small percentage of his regular earnings represents tips. In previous years he has declared VAT on the whole of his takings including the tips. However he would now like to make a VAT adjustment for 5% of his takings which he considers is a best estimate of the tips that he would have received and banked over the past three years that he has been trading.
I have three questions for readers:
- Is the 5% adjustment a reasonable assumption to make?
- I can understand that tips are not consideration and are potentially outside the scope of VAT but if retained in the company bank account are they subject only to corporation tax but not VAT? ...
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