Can your salon take payments from your self-employed renters’ clients?

Here’s a common set up:

A chair renter finishes the cut of one of their clients; then takes her up to the reception desk, where she lets the Salon’s Front of House take the clients payment through the Salon’s own POS and merchant card reader.

How will HMRC view this? Will this sale belong to the self employed renter, or the salon for VAT and tax purposes?

Here’s the answer

There’s a bit of a misconception in our industry that a salon cannot take the payment in this way.

However, this misconception is wrong.

HMRC would look at the whole arrangement between the Salon and its self employed renters (both from the point of view of the contract between them and what is happening in reality). HMRC would do this by going through an agreement that the NHBF and HMRC have in place; as well as using the HMRC CEST tool to determine 2 things:

1. whether the stylist is really self-employed, or actually a pseudo employee of the salon
2. does the sale belong to the salon or the self employed renter, and therefore who is liable for any VAT and business tax on it

In our specific example, the NHBF/HMRC agreement includes the following:

Section 4, Money

• The money received from clients attended by the Contractor to be the property of the Contractor, whether or not it is taken centrally.
• Money collected centrally should either be handed over to the Contractor or paid into an account held in the name of the Contractor.
• Money held for and on behalf of the Contractor, and the salon holding such funds should account to the Contractor for those funds.
• And this is why if a salon follows option 1 (in my answer above), it needs to ensure it’s set up 100% correctly.
• The money it collects, it does so as part of its rental agreement – as an added service.

If your salon does have this arrangement in place, it should ensure it is set up 100% correctly to keep HMRC happy. Who takes the money is just one small part of it!

• Posted on March 12th, 2020 in VAT