Executive Summary
- VAT error: The post deducts VAT after commission in one version, giving an impossible result — the VAT figure is identical in both versions despite different starting points
- Commission applied to gross: Commission on a VAT-registered sale should be calculated on the net (ex-VAT) amount — not the gross price
- Overheads double-counted: Fixed overheads are a business cost spread across all revenue, not a per-service deduction applied on top of wages
- Tax/NI misapplied: Employer NI is an annual cost already captured in the wage calculation — it cannot be deducted again per service
- The real position: A correctly modelled £200 service produces a substantially healthier contribution than £22
- The model is wrong in principle: No single service bears the full overhead burden of the business — that's not how service economics works
What the post claims
A widely circulated social media post breaks down a £200 salon service across two slides. The first version (without commission) ends at £42.47 remaining. The second version (with 10% commission) ends at £22.47 remaining, with the caption: "It's over half a day's work and there's £22 left."
A third slide lists additional costs not factored in — holiday, equipment, education, colour wastage, corrections — implying the real position is even worse.
The post is well-intentioned. The pressures it's trying to illustrate are real. But the calculations contain errors that compound each other, and the underlying model is not how any service business actually works. Let's go through each one.
Error 1: VAT treatment
This is the most fundamental error, and it flows through everything that follows.
VAT collected on a sale is not income. It was never the salon's money. It belongs to HMRC from the moment the customer pays. A VAT-registered salon charging £200 for a service is collecting:
Correct VAT extraction from a £200 gross price
The post correctly identifies the VAT figure as £33.33, and the no-commission version (image 3) correctly starts the cascade from £166.67. So far so good.
But image 2 — the commission version — deducts the £20 commission before VAT, starting from £180. Then it applies the same £33.33 VAT figure. This is wrong in two ways simultaneously.
The internal contradiction the post doesn't notice
VAT on £200 gross = £33.33. This is correct.
VAT on £180 gross (after deducting commission) = £30.00. Not £33.33.
The post uses £33.33 in both versions despite different starting points. The VAT figure cannot be the same when the gross amount has changed. One of the two calculations must be wrong — and in fact both are, for different reasons.
Error 2: Commission applied to the wrong figure
In a VAT-registered business, commission arrangements are calculated on the net revenue — the amount that actually belongs to the business — not the gross price charged to the customer. The VAT element is not part of the salon's income and cannot form part of any commission basis.
Correct commission calculation
This matters less than the VAT error, but it compounds it. Commission structures in employment contracts should always specify whether they apply to gross or net revenue — and for any VAT-registered business, net is the only logically defensible basis.
Error 3: Wages calculated incorrectly
The post deducts £54 for wages on a 4.5-hour service, implying a wage rate of £12/hr. From 1 April 2026 the National Living Wage for workers aged 21 and over is £12.71/hr. At the correct rate:
Wage cost at current NLW
A minor point in isolation, but given the post is presented as a current cost reality check published on or around 6 April 2026, using an outdated wage rate undermines the analysis.
Error 4: Tax/NI is double-counted
The post deducts £18.20 for "Tax/NI" as a per-service cost after wages. This cannot be correct for two reasons.
First, employer NI is an annual payroll cost — it is already factored into the true cost of employment. If you've already captured the wage cost (£54–£57 per service), deducting NI again on top of that is counting the same cost twice.
Second, income tax is paid by the employee, not the employer. It is deducted from the employee's gross wage via PAYE. It is not an employer cost at all and has no place in a business profitability calculation.
What £18.20 "Tax/NI" per service actually represents
If this figure is intended to represent employer NI on the £54 wage element, the calculation doesn't work either. Employer NI at 15% on £54 would be £8.10 — not £18.20. The figure appears to include employee income tax, which is not a cost the business bears. Removing this deduction entirely from the business calculation is correct.
Error 5: The overhead model is fundamentally wrong
This is the deepest problem, and it affects both versions of the calculation.
The post deducts £20 for "overheads" as a fixed per-service cost. But overheads — rent, rates, utilities, insurance, software — are fixed costs. They do not increase when you do an additional service. They are incurred whether you do one service that day or eight.
The correct way to think about overheads in a service business is contribution analysis:
How service business economics actually works
Fixed costs (rent, rates, utilities, insurance) are paid regardless of revenue. They need to be covered by the total revenue of the business — not allocated per service.
Variable costs (stock, wages for that service) vary with each service and can be deducted per service.
Contribution = Net revenue minus variable costs. This is what each service contributes toward covering fixed costs and then generating profit.
Once fixed costs are covered for the month, every pound of contribution above that is profit. A busy Friday afternoon service doesn't bear the same overhead burden as the first service of a slow Monday morning.
What the correct calculation looks like
Setting out the £200 service honestly, for a VAT-registered salon with an employed stylist on current NLW:
| Item | Post's figure | Correct figure | Notes |
|---|---|---|---|
| Gross service price | £200.00 | £200.00 | |
| Less: VAT (÷6) | £33.33 (applied after commission — wrong) | £33.33 | Must be deducted first |
| Net revenue | — | £166.67 | The actual starting point |
| Less: Commission (10%) | £20.00 (of gross) | £16.67 (of net) | Applied to net, not gross |
| Less: Stock/colour (16%) | £32.00 | £26.67 (16% of net) | Should also be % of net |
| Less: Wages (4.5hrs) | £54.00 (£12/hr) | £57.20 (£12.71/hr) | NLW increased 1 April 2026 |
| Less: Tax/NI per service | £18.20 | £0 | Double-count — not a per-service cost |
| Less: Overhead allocation | £20.00 (fixed per service) | Variable | Fixed costs don't work this way |
| Contribution (before fixed overheads) | £22.47 (claimed) | £66.13 | Variable costs only, net basis |
How to read the £66.13 contribution figure
This is not "profit" — it is the amount this service contributes toward covering the salon's fixed costs (rent, rates, utilities) and then generating profit. Whether the business is profitable depends on whether the total contributions from all services in a month exceed total fixed costs. That is a whole-business question, not a per-service one.
The correct contribution is roughly three times what the post claims
By correcting the VAT sequencing, applying commission to net revenue, using the current NLW rate, and removing the double-counted NI, the service contribution rises from £22.47 to approximately £66. The errors compound each other — each wrong step makes the next one worse.
What about the slide 1 list of uncounted costs?
The third slide lists genuine costs the calculation doesn't include — holiday, equipment, education, colour wastage, corrections. These are real. But they belong in a whole-business overhead model, not tacked onto individual service calculations.
The right way to account for these is:
- Add them to your total annual fixed costs (or apportion them across the year)
- Divide total fixed costs by the number of services or revenue hours you expect to generate
- That gives you your fixed cost per service hour — your break-even contribution requirement
- Any contribution above that figure is profit
This is basic management accounting. It gives you a number you can actually use to make decisions — unlike a cascade of deductions applied in the wrong order to the wrong starting figure.
Is the underlying message wrong?
No — and it's important to say that clearly. Salon margins are under genuine pressure. Rising wages, higher employer NI, day-one SSP, increased stock costs — these are all real and material. Many salons are underpricing their services relative to their actual cost structure.
But the way to address that is with correct numbers. A salon owner who believes a £200 service leaves £22 may make entirely different decisions — on pricing, on staffing, on whether to keep trading — than one who understands the contribution is closer to £66 before fixed costs, and that the question is whether their total monthly contribution covers their total fixed cost base.
Anxiety is not analysis
Content that presents alarming numbers without checking the arithmetic doesn't help salon owners. It keeps them scared, dependent on the voices scaring them, and potentially making decisions — including closing — on the basis of figures that don't reflect reality.
What you should actually be tracking
Rather than a per-service cascade model, the numbers a salon owner needs to understand their position are:
- Total monthly revenue (net of VAT)
- Total variable costs — stock and direct wages — as a percentage of net revenue
- Total monthly fixed costs — rent, rates, utilities, insurance, software, education budget
- Monthly contribution = net revenue minus variable costs
- Monthly profit/loss = contribution minus fixed costs
If your contribution consistently exceeds your fixed costs, your business is viable. If it doesn't, the question is whether you have a pricing problem, an occupancy problem, a cost problem — or some combination. Those have different solutions, and you can't identify which one you have from a per-service cascade with the wrong VAT treatment.
Conclusion
The £200 service breakdown post contains at least four material errors: VAT applied after commission rather than first; commission calculated on gross rather than net; employer NI double-counted as a per-service deduction; and a fixed overhead model that doesn't reflect how service business economics work.
Correcting these errors produces a contribution of approximately £66 per service toward fixed costs — not £22. The difference is not trivial. It is the difference between a business that appears unviable and one that, with correct pricing and decent occupancy, may be in a manageable position.
The pressures facing salon owners in 2026 are real and deserve honest analysis. That means getting the numbers right — not amplifying anxiety with calculations that don't hold up.
Notes on calculations
All figures based on confirmed statutory rates effective 6 April 2026:
- VAT fraction for 20% standard rate: £200 ÷ 6 = £33.33 (HMRC standard method)
- National Living Wage from 1 April 2026: £12.71/hr (Low Pay Commission, confirmed Spring Statement 2026)
- Employer NI rate 2026/27: 15% above £5,000 Secondary Threshold (HMRC)
- Stock percentage applied to net revenue — the post applies it to the running total after VAT deduction, which we have maintained for like-for-like comparison
If you find an error in our calculations, we want to know. We correct mistakes immediately and publicly.