From 1 October 2012, any charge for ‘chair rental’ or similar at a hairdresser’s or beauty salon becomes standard rated for VAT.
For many years salon owners have allowed self-employed stylists to rent a chair, with a wash basin, and the surrounding area, arguing that it is a licence to occupy land, and therefore VAT-exempt. In many cases, this allowed the salon owner not to register for VAT. The HMRC Budget guidance is at http://www.hmrc.gov.uk/budget2012/tiin-4802.pdf
Since November 2007, HMRC have benefited from a helpful High Court decision (http://www.bailii.org/ew/cases/EWHC/Ch/2007/2750.html). The Court held that the salon owner in fact supplied to the stylists ‘all the facilities requisite for the carrying on by him or her of the business of a hairdresser.’ The supply was therefore standard rated. (The taxpayer owed over £80,000 of VAT, having registered for VAT 9 years late!)
From October, therefore, the ‘chair rental’ matter is settled. There remain two related issues:
- Whether the income of the individual stylists is properly treated as the income of the salon; and
- Whether the stylists should be treated as employees in any case.
It would be worth considering a simple written contract between the salon owners and the stylists, to outline the arrangements, and payments due under those arrangements.
I have been reading the draft legislation, which only refers to 'the grant of facilities within relevant premises to a person supplying hairdressing services.' Related activities, such as beauticians, seem not to be affected. Is this an opportunity or an anomaly?
(I have taken a bit of a break from posting, but back in action now! This post is the first of a series following up various current VAT issues, including Budget changes. Enjoy!)
About Les Howard
Hi, I am a VAT Consultant, working mainly with charities. I am based in Cambridgeshire
I have over 20 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.