Along with other VAT changes like the much published “pasty tax” the Chancellor made a change or, as he put it, “removed any opportunity for confusion” to make the provision of a chair in a hairdressers salon subject to the standard rate of VAT currently 20%. VAT on hairdressers chairs at some salons had in the past argued that it was rent and therefore not subject to VAT.
This means that stylists whose turnover is below the VAT threshold and who are not registered for VAT cannot reclaim the VAT charged and will have to pass it on the their clients through higher prices or take the hit and make less money.
It has further implications depending on the size of the salon. The income must now be taken into account when considering if a salon needs to register for VAT i.e. is it above the threshold.
The clarification is written into law from 1 October but HMRC still take the view that VAT is applicable now.
The thrust of their argument is that what the stylist receives is a supply of services not a licence to occupy land.
If a salon rents out an exclusive area to say a beautician and provides little in the way of services it is still arguable that it is rent and no VAT needs to be charged although each case must be looked at on its own merits.
If this affects you and you would like to discuss it please contact us.