VAT on your Haircut
Who owns the chair?
Except for those amongst us who no longer have a fine head of hair, we all need to go to the hairdresser every 4 weeks or so and apart from the big salons, most of us do not pay 20% VAT as our hairdresser is not registered for VAT. Things are about to change…
The reason many of us are not charged VAT is because your hairdresser rents a chair in a salon from the owner and as it is likely their turnover will be below the VAT Registration threshold of £77,000 p.a. they are exempt from charging VAT and you save 20%.
Unfortunately, HM Revenue & Customs (HMRC) have become aware that the rules on this perfectly legal tax avoidance scheme are often being misinterpreted, so they have clarified their position with regards to VAT on chair rentals.
Until 1st October 2012, salons charged a fee to individual stylist for their chair and treated it as exempt from VAT as they considered it a licence to occupy their chair space (legally a supply of land), however HMRC have argued this charge includes a number of other services (e.g. use of washbasins, reception, waiting area for clients) which cannot be described as ancillary to a supply of land and is therefore outside the exemption.
So, if the salon your stylist rents their chair from is VAT registered, they will have to charge VAT on the rent payable, with the consequence that 20%VAT will be added to chair rental cost from now on.
It could be worse, you could have his hairdresser
All however is not lost. The salon owner is often a hairdresser themselves and their individual earnings from this are likely to be below the VAT threshold and the easiest method of avoiding the VAT charge, is for them to make all of their staff self-employed and to rent them a chair. As the salon owner is now below the £77,000 limit they are still exempt from charging VAT.
Some salon owners, however for a variety of reasons, will remain VAT registered and will therefore have to charge 20% on the chair rental, however as this rental is typically 25 to 33% of a stylists turnover the VAT impact will be greatly reduced and the impact on the customer should only be a 5 to 7% increase, even if the stylist decides to pass on the charge.
If you are a self-employed hairdresser or a salon owner or simply want to avoid VAT and need further advice or help from an Accountant that has specialism in this area, contact Shrewsbury Accountants Morgan Jones & Company
David Jones is the Senior Partner and Founder of Morgan Jones & Company. Born in Liverpool and an Accountancy graduate of the University of Wolverhampton, David spent twenty years working for the Customs & Excise in London then Shrewsbury before starting his own business. David's depth of knowledge of the UK tax system and his ability to communicate this learning has seen Morgan Jones & Company grow into Shropshire's most respected Accountancy Practice.