Renting out chairs to self-employed hairdressers can be a great arrangement for both salon owners and stylists.

For the salon, it can provide a regular income without taking on the full costs and responsibilities associated with employing additional staff. For the stylist, it offers the opportunity to run their own business from an established salon without the expense of operating their own premises.

However, simply calling someone a “self-employed chair renter” does not automatically make them self-employed.

The agreement needs to be set up properly — and, more importantly, what actually happens in the salon needs to reflect that agreement.

Is the hairdresser genuinely self-employed?

This is probably the most important issue.

HMRC has specific guidance covering employment status in the hair and beauty industry, including people who rent chairs in salons.

A genuinely self-employed stylist would typically have a significant amount of control over their own business. For example, they may:

• choose their own working days and hours;
• set their own prices;
• maintain their own client records;
• decide which services they offer;
• purchase some of their own products and equipment;
• receive payment directly from their customers;
• be responsible for attracting and retaining their own clients; and
• bear the financial risk of having a quiet week with fewer appointments.

They may also work from more than one salon or provide services elsewhere.

HMRC’s own example of a self-employed chair renter includes many of these characteristics.

By contrast, if the salon owner determines the stylist’s hours, allocates their customers, determines how long appointments should take, sets their prices and closely controls how they work, the relationship starts to look much more like employment.

The important point is that the reality matters more than the wording on the contract.

Have a proper written rent-a-chair agreement

Every self-employed stylist should have a written agreement with the salon.

The agreement should clearly set out the commercial relationship between the two businesses and should cover matters such as:

• the amount of chair rent;
• when and how the rent is paid;
• whether the rent is fixed or calculated as a percentage of takings;
• which part of the salon the stylist can use;
• opening and access arrangements;
• what equipment and facilities are provided;
• responsibility for products and consumables;
• insurance requirements;
• responsibility for clients and bookings;
• notice periods; and
• what happens when the arrangement ends.

Having a written agreement is important, but it shouldn’t simply be signed and forgotten.

The way the salon and stylist operate in practice should be consistent with the agreement.

Who does the customer actually belong to?

This can be particularly important when determining whether the stylist is genuinely operating an independent business.

In a straightforward chair-rental arrangement, the customer will normally be the stylist’s customer rather than the salon’s.

Ideally, the stylist will:

• maintain their own client list;
• manage their own appointments;
• set their own charges; and
• receive payment from the customer themselves.

That doesn’t necessarily mean the salon cannot provide a reception desk, booking system or card machine.

However, if customer payments are collected centrally, it is important that the accounting records clearly distinguish between:

money belonging to the salon, and
money collected on behalf of the self-employed stylist.

Otherwise, there is a risk that all the money going through the salon’s bank or card machine could appear to be salon turnover.

What should the chair rent include?

The agreement should also make it clear what the stylist is getting in return for the rent.

Depending on the salon, this might include:

• use of a styling chair;
• wash basins;
• electricity and water;
• towels and laundry;
• reception facilities;
• booking software;
• card payment facilities;
• cleaning;
• refreshments for clients;
• use of communal areas; and
• storage facilities.

The more clearly this is documented, the less scope there is for disagreements later.

Fixed rent or percentage of takings?

Chair rent does not necessarily have to be a fixed weekly or monthly figure.

Some salons charge a fixed amount, while others calculate rent by reference to a percentage of the stylist’s takings.

HMRC’s own guidance includes an example where a salon charges self-employed barbers a percentage commission on each appointment as the rent for their space.

Whichever method is used, it needs to represent a genuine commercial arrangement between the salon and the stylist.

Don’t forget VAT on chair rental

VAT can easily be overlooked.

Chair rental is generally not treated simply as VAT-exempt rent of property.

Where the salon provides a chair together with normal salon facilities — such as wash basins, reception facilities, waiting areas or other hairdressing-related services — HMRC treats the overall supply as taxable for VAT purposes.

Therefore, if the salon is VAT registered, VAT will normally need to be charged on the chair rental.

For example, if the agreed chair rent is £250 plus VAT per week, the stylist would normally pay:

£250 rent + £50 VAT = £300

The salon would issue an appropriate invoice and include the VAT within its VAT return.

Salon owners should therefore make sure that chair rental income is included when considering their own VAT position and VAT registration threshold.

What about the stylist’s tax?

A genuinely self-employed stylist is running their own business.

They will therefore normally be responsible for:

• registering with HMRC where required;
• keeping appropriate business records;
• submitting Self Assessment tax returns;
• paying their own Income Tax and National Insurance;
• monitoring their own VAT registration position; and
• arranging suitable business insurance.

If they trade through a limited company, the tax and reporting requirements will of course be different.

Insurance is important too

The salon’s insurance should be checked carefully.

A salon owner should not simply assume that their existing policy automatically covers completely separate self-employed businesses operating from the premises.

The chair-rental agreement would normally require the stylist to maintain their own appropriate professional and public liability insurance.

It is also sensible for both parties to confirm with their respective insurers that the arrangement is properly covered.

The key question: does it really look like two businesses?

Perhaps the simplest way to look at a chair-rental arrangement is to ask:

Does this genuinely operate like two independent businesses sharing the same premises?

If the answer is yes, the arrangement is much easier to support.

If, in reality, the stylist works fixed hours dictated by the salon, uses salon customers, charges salon prices, has no financial risk and is managed in exactly the same way as an employee, simply putting “self-employed” at the top of an agreement is unlikely to solve the problem.

Getting the structure right from the outset can avoid potentially expensive issues with PAYE, National Insurance, VAT and employment status further down the line.

Thinking of renting chairs in your salon?

If you’re considering introducing rent-a-chair arrangements — or already have self-employed stylists working from your salon — it is worth reviewing both the written agreements and the way the arrangement operates in practice.

At williams lester accountants, we can help salon owners structure the financial and tax side of chair-rental arrangements correctly, including VAT, bookkeeping, payment arrangements and the distinction between salon income and the income of individual stylists.

Get in touch with us if you’d like us to review your proposed arrangement before putting it into place.