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Rent a Chair

Is it a trading business? Can director rent a chair as self employed stylist?

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Company currently trading as a hairdressing salon but wishes to convert to rent a chair.  

Plan to make current staff redundant and they will become their own boss renting space in the salon.

Would the company still be classed as a trading company and benefit from Business Asset Disposal relief if the business is wound up in say 5 years time?

The director is currently a stylist in the salon.  Can he set up as self employed and rent a chair from the company in the same way as the others?

Thanks for any guidance

Replies (13)

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RLI
By lionofludesch
26th Jul 2021 11:47

It's a very slippery slope that you're standing at the top of there.

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By Andy556
26th Jul 2021 11:59

The best advice would be to stay clear of providing any advice!

Would the company be profitable from just having chair rent?

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By Leywood
26th Jul 2021 11:59

Why?

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Replying to Leywood:
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By SDGREEN
26th Jul 2021 12:11

The owner sees it as an easier life than the current structure employing staff and rather than retire completely/shut down he would rather retain the salon and let the current staff be in charge of their own clientele.

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VAT
By Jason Croke
26th Jul 2021 13:02

From a VAT perspective, you need to ensure water-tight contracts and clear lines between agent and principal as HMRC don't like ambiguous arrangements. When a customer books, who takes the booking, when a customer pays which bank account does it go into, can the stylists work whatever days they like, etc.

As Lion has indicated, there is a lot to go wrong here and needs precision to get right, and a forum is probably not the best place for that.

https://www.salonsdirect.com/blog/rent-hairdressing-chair-tips/ is a useful starting point.

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By adam.arca
26th Jul 2021 13:03

Echoing Lion especially (but everyone else too) here. There are just so many issues in what your client is contemplating: straight off the top of my head (and I don't act for any hairdressers) there's VAT, employment status, director / staff cut-off, legal issues with making the rent-a-chair contracts stick and, at the same time, stand up to outside scrutiny, and many more I'm sure....

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Replying to adam.arca:
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By the_fishmonger
27th Jul 2021 11:57

adam.arca wrote:

Echoing Lion especially (but everyone else too) here. There are just so many issues in what your client is contemplating: straight off the top of my head (and I don't act for any hairdressers) there's VAT, employment status, director / staff cut-off, legal issues with making the rent-a-chair contracts stick and, at the same time, stand up to outside scrutiny, and many more I'm sure....

HMRC are quite keen on reviewing these arrangements because they can get good £ returns on the inquiry time spent.

Having dealt with a [VAT] Hidden Economy Team surprise* visit (with PAYE guy in tow) to a group of tattoo artists about four years ago, I can tell you they keep coming at you. Everyone involved, including the receptionists and former bookkeeper, had to sit through a 200 question session.

We were fine, having had most everything in place with a separate premises business and a very savvy lead renter/director. There were still issues they went away chuntering about - seperate card machines, a note by the chairs saying they were self-employed at 'parlour', parlour branded vouchers and a few more.

On that occasion, their main target was to prove that it was false splitting for VAT and looking to instruct aggregation.

* knock, knock, here's our letter informing you we're coming (now waving in your face).

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By Tax Dragon
26th Jul 2021 14:41

Is no-one answering the question because there's more info needed? That's true, of course. But with a professional OP I thought the Aweb Code said we were to assume all relevant info had been provided (unless the question made it clear - as a surprising number do - that no facts had actually been obtained)? [Whereas of course that would be a crazy assumption to make for the unrepresented drifters that happen by.]

So I think we can say: no; yes.

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Replying to Tax Dragon:
RLI
By lionofludesch
26th Jul 2021 14:50

Tax Dragon wrote:

Is no-one answering the question because there's more info needed? That's true, of course. But with a professional OP I thought the Aweb Code said we were to assume all relevant info had been provided (unless the question made it clear - as a surprising number do - that no facts had actually been obtained)? [Whereas of course that would be a crazy assumption to make for the unrepresented drifters that happen by.]

So I think we can say: no; yes.

What if the company retained one chair, used by the director, and rented the rest out?

Personally, I don't like these arrangements. The clients tend to cut corners and sabotage their own tax planning.

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Replying to lionofludesch:
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By Tax Dragon
26th Jul 2021 15:04

lionofludesch wrote:

What if the company retained one chair, used by the director, and rented the rest out?

Good question. Discussing that might help the OP understand why the answer to the (first) closed query raised was no (and therefore what might be done about it).

Achieving understanding is so much better than having answers. I applauded taxnovice for wanting understanding, not just answers, on another thread this very morning. But, as I said to taxnovice on that (now-deleted) thread, it's not something that the forum can always provide.

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Replying to Tax Dragon:
A Putey FACA
By Arthur Putey
26th Jul 2021 17:16

Does that mean that as director he would pass any tips onto himself as stylist?

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Replying to Arthur Putey:
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By Tax Dragon
26th Jul 2021 22:12

What does he do at the moment?

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Replying to Tax Dragon:
A Putey FACA
By Arthur Putey
27th Jul 2021 09:20

Keeps them probably

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