New and Updated Hair, Beauty and Nail Salon Template Agreements

June 2021

Salon Chair Rental Agreements

The chair rental agreement templates for self-employed beauty professionals have recently been reviewed in the light of relevant legal and industry developments, including case law, employment law, current IR35 tax rules and VAT law. The existing chair rental agreements have been updated and new versions have been added.

Updated templates

The existing templates cater for hairdressers, beauty therapists and nail technicians. In each case there is a version of the template for an individual to use, and a version for a personal service company (PSC) to use. These templates make provision for the situation where the professional provides services direct to their own clients and also, on an occasional basis, to salon clients. Assuming that most of the freelancer’s work comprises serving their own clients, and since the freelancer also serves any salon client only if they are referred by the salon and then only if the freelancer chooses to accept that referral, the freelancer retains their independence and acts in the course of their own business, not as an employee of the salon.

New templates

The new chair rental templates also cater for hairdressers, beauty therapists and nail technicians working as an individual or through a PSC. The difference is that these new forms of agreement only cater for the situation where the professional provides their services direct to their own clients, and not also on any occasion to any (referred or other) salon clients. These new templates are accordingly slightly shorter and simpler than those described above.

Industry Background

Many hairdressers, beauty therapists and nail technicians work in salons as independent professionals. Rather than working as employees or contractors of a salon, they provide their services direct to their own clients as freelancers. They do so either as self-employed individuals or through their own personal service or other intermediary company (“PSC”).

In either case, the freelancer operates their own business (separate from that of the salon) and does not work for the salon. The freelancer and the salon enter into an agreement whereby the freelancer rents a chair and associated facilities from the salon to use when providing services to the freelancer’s clients. In return for that right, the freelancer pays a fee to the salon. The fee can be calculated as a fixed fee per week/month or as a percentage of the freelancer’s profits earned from their work at the salon.

An alternative arrangement is for a freelancer to provide their self-employed services and serve the salon’s clients on behalf of the salon. In this situation the salon (not its clients) pays the freelancer for the work that they carry out for the salon. The freelancer does not rent a chair in this case. This arrangement can provide the freelancer with a degree of independence and flexibility. However, there is a greater danger in this case - depending on all of the circumstances – that they will be found to be an employee of the salon rather than a self-employed individual. This might occur if their claimed status as a self-employed person is challenged by HMRC. For that reason, a chair rental arrangement will often be preferred by freelancers and salons.

Where both parties wish to establish a chair rental arrangement, they need to maximise the likelihood that, in law, the freelancer acts as a self-employed independent business providing services to their own clients, not an employee of the salon. For this purpose, the freelancer and salon must do more than just sign an agreement describing their arrangement as a “chair rental”. They must also ensure that the terms of the agreement and the way in which the salon and the freelancer operate in substance are fully consistent with the arrangement being a chair rental which permits the freelancer to operate their own business independently and to serve their own clients.

There are a number of legal sources that indicate what is likely to amount to a genuine chair rental arrangement and what is unlikely to do so. In revising the templates account has been taken of the guidance afforded by those sources to try to minimize the risk that a freelancer will be found to be an employee. Firstly, there is a set of guidelines agreed between HMRC and the National Hairdressers’ Federation (which you can find here ) listing a number of pointers that HMRC accepts as indicating a chair rental agreement. The guidelines extend to any beauty therapy services, not just hairdressing. Secondly, the recent Uber, Deliveroo, Pimlico Plumbers and other cases also afford guidance as to the circumstances in which an individual will be regarded in law as operating an independent business.

The drafting of the revised and new template agreements for individuals and PSCs fully take into account relevant current law and practice, including case law, employment law, IR35 rules and VAT law, with the aim of minimising the risk of the freelancer being found by HMRC or any court to be an employee.

By adhering to a proper chair rental arrangement, a freelancer will benefit where they wish not to be deemed to be an employee but instead to be self-employed. The salon also benefits from a proper chair rental arrangement: if the freelancer were to argue that they are in law an employee - so that they can claim the rights that flow from that status – the salon can more easily argue that the arrangement is inconsistent with employment status.

The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.

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