Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what steps she has taken to ensure that those operating under disguised employment models in the hairdressing industry do not receive tax advantages compared to traditional employers since the Minister for Employment Rights, Competition and Markets met with representatives from the personal care sector in November 2024.

HMRC is committed to ensuring the tax system operates fairly and efficiently, creating a level playing field for all compliant businesses. Most businesses pay what they owe, but a minority fail to register or only declare a portion of their earnings for tax. This minority deprives our vital public services of funding, affects fair competition between businesses, and places unfair burdens on everyone else.

The ‘rent-a-chair’ model is a legitimate business model widely used in the hair and beauty sector and, where applied correctly, can result in individuals being classed as self-employed for employment purposes. Whether an individual is employed or self-employed is not a matter of choice but is determined by the actual terms and conditions under which they work. This is underlined by an agreement between HMRC and the National Hair and Beauty Federation, which clarifies standard practices in the industry for VAT purposes.

The agreement advises that salon owners and their contractors should have an agreement in writing that clearly and accurately reflects their working practices. Both parties can use HMRC’s Check Employment Status for Tax (CEST) tool to check the employment status of an engagement. HMRC will stand by the self-employed or employed determination that the CEST tool provides, so long as the information given is accurate.

If a business chooses to operate the ‘rent-a-chair’ business model this could result in individuals being classed as self-employed for tax purposes. In all such cases HMRC would expect businesses to meet their legal obligations regarding paying the right taxes and National Insurance contributions.

HMRC are committed to tackling false self-employment and will investigate evidence that suggests businesses have misclassified individuals for tax purposes. HMRC will challenge businesses that either artificially separate to avoid exceeding the VAT registration threshold or design schemes to reduce the amount of VAT they owe and will take steps to ensure that they pay the right amount of tax.

HMRC’s approach to tax compliance includes a range of activities that aim to both detect and tackle current non-compliance and change future behaviours. HMRC aims to help and support customers to understand their tax obligations and promoting compliance by simplifying policies and procedures, providing clear guidance to make it easy for them to get things right, providing accessible digital services to make it easier to register to pay the appropriate taxes, providing targeted support and guidance, and intervening early to reduce mistakes. However, HMRC will not hesitate to use stronger sanctions against those who deliberately choose not to comply, including potential criminal prosecutions for the most serious cases involving tax evasion.