Disguised Employment: Are you falling into the trap?

Avoid a painful HMRC investigation by following these guidelines

Cut costs
Monitor your business

Self employed. Chair renter. Contractor

The number of people in hair & beauty who identify as one of the above is increasing. More than half in the beauty industry are now self-employed.

However according to British Beauty Council,“there is increasing evidence that these individuals, and their employers, aren’t fully aware of the tax expectations that come with self-employed and rent a chair models”.

If you are going to work with self employed contractors or rent a chair in your business, It is vital to set up your business correctly to avoid an unnecessary and painful HMRC investigation

HMRC crackdown

HMRC’s started to crackdown on disguised employment following the Supreme Court ruling in 2021 against Uber. Taxis and hairdressing sound different but this ruling sets a precedent for further cases in which businesses utilising self-employed individuals under ‘disguised employment’ can be prosecuted.

The hair sector has seen numerous cases of courts and tribunal rulings against salons across the UK who do not have true self-employed agreements. If HMRC finds that self-employed salon teams are effectively employees, then those staff should be entitled to sickness, holiday, and redundancy pay. This also means the employer is liable to pay employee and employers national insurance contributions, as well as VAT liabilities. This is why it is so important to set up your business correctly.

Chair renters can also cause problems for you with HMRC if all takings are going through 1 bank account for employed and self-employed staff. HMRC are stickler for accurate records and its difficult to be completely accurate when so many single transactions come into a business.

Red flags for HMRC investigations

To ensure you are not operating as  ‘disguised employment’, you need (amongst other things) to show you:

  • Have a specific agreement / contract in place setting out the working relationship between the 2 parties
  • Allow self-employed individuals’ total control over their  working hours, pricing, dress code and holidays
  • Allow Self-employed individuals to have access to their ‘chair’ or premises whenever suits them to practise their trade
  • Separate payments. You should not take deposits or payments on the self employed individuals behalf
  • Keep self employed takings / reporting completely separate.
  • Do not pay for or contribute to the costs of equipment (including software or payment fees) or other running costs for the self Employed staff 

For more information, read the HMRC guidelines here. As a top line guidance, HMRC state the following principles: 

  1. each party to have ultimate command and authority over all aspects of their respective business 
  2. each party to be responsible for the finances of their respective business 
  3. neither party to be solely obligated to - or rely or depend upon - the decisions of the other.

Rebecca Day an HR expert says “ If HRMC decides your contractor actually is a ‘disguised’ employee, you could end up with a big tax bill. Just because the contract says ‘self-employed’ it doesn’t mean that they are.” “In essence someone is only self-employed if they are running a chair or beauty bed in your salon and are running their own business which you have nothing to do with. So, you shouldn’t be booking their clients in, or allowing their payments to be mixed up with the payments for your employed staff.”

You need to be really careful. Try not to involve self employed staff in the running of your business and the decisions you make. It is your business and you need to have sole control over the running of it.

Gemma Kelly, ASSOC. CIPD Senior HR Advisor gives the following advice:

  • Keep self employed takings completely separate. HMRC are stickler for accurate records and its difficult to be completely accurate when so many single transactions come into a business.
  • HMRC investigate on a per transaction basis so never take your commission/chair rent prior to sending self employed their takings.
  • All accountants should have Fee Protection Insurance to help with tax advice if/when HMRC do an investigation
  • Accountants should be advising to keep transactions separate for self employed staff

The Hair Council have launched a free HR line if you have any questions about your Chair Renter set up. They can be reached on 0161 819 4657

How can Slick help?

SlickPay has been designed for those renting chairs or operating a hybrid model with employed staff and self employed staff in the same premises.

SlickPay allows payment or deposits to be taken in store or online and the monies deposited in the bank account of the relevant service provider net of any payment fees.

This ensures that cash flow and revenue is separated for the business and the self employed contractors alike

Importantly the self employed pay any payment fees which means you are not paying any of their costs but also means you increase your profitability.

Find out more at www.getslick.com/slickpay

This article is for educational purposes and does not constitute legal, financial, or tax advice. For specific advice applicable to your business, please contact a qualified professional

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