HMRC published employment status guidance written specifically for hair, beauty and barbering this year, produced with the NHBF, with worked examples that sound like salons you know. It followed a run of cases about disguised employment in the industry, and the message running through all of it is blunt: what the agreement is called counts for nothing. A stylist can sign a chair rental agreement, invoice you monthly, and still be your employee in law, with the back taxes landing on the salon.

What HMRC is actually looking at

Four things: control, substitution, financial risk, and who provides the kit. Who decides how, when and at what price the work is done. Whether the stylist could send a qualified substitute in her place, in principle and in reality. Whether she can genuinely lose money in a bad week, or just earn less. And whose colour, whose tools and whose premises the work runs on. The label on the paperwork appears nowhere on that list, and a signed rental agreement describing an arrangement that doesn't exist is worse than useless, because it shows everyone knew what the arrangement was supposed to look like.

The tests, in salon terms

Walk through a week in your salon and the questions answer themselves. Who sets her prices, and could she put them up on Monday without asking you? Who takes her bookings, and do her clients book with her or with the salon? Who buys the colour on her trolley? Who decides which days she's in, and what happens if she takes a fortnight off without clearing it? Could she hire someone to cover her column? If the salon has a quiet month, does her income fall too, or does the arrangement quietly guarantee her?

A renter who works the hours you set, at prices on your price list, on clients booked through your reception, using colour you bought, is an employee with a rental agreement on file, and every one of those facts is visible to an inspector within ten minutes of walking in.

What a genuine rental arrangement looks like

Her own prices, set by her and different from yours if she likes. Her own diary, or her own clearly separate column in the salon's system. Her own stock, ordered and paid for by her. Her own insurance, held in her name. Her own card machine, or a written settlement of exactly what she takes and what she pays you. Rent that gets paid whether she had a good week or not, because rent is the financial risk that makes her a business. And a written agreement that describes all of this accurately, which it can only do if all of it is true first.

What a written agreement needs to cover

  • Rent, amount and timing. A fixed figure or a stated percentage, when it's due, and what happens when it isn't paid.
  • What the rent includes. The chair, the basin time, towels, reception, utilities. Listed, so nobody is arguing about the backwash in month eight.
  • Hours of access. When she can use the space, framed as access to premises rather than a rota.
  • Notice on both sides. How the arrangement ends, and how much warning each side owes.
  • Insurance. Her public liability and treatment cover, held by her, with the salon entitled to see the certificate.
  • Client records. Whose data her client list is, where it's held, and what happens to it when she leaves.
  • Bookings when she goes. What happens to appointments already in her column past her leaving date.

The client records question

This is the clause people skip and the fight that actually happens. In a genuine rental, her clients are her business's clients, and her list should be hers to take, which cuts the opposite way from the employed-stylist position, where the list belongs to the salon. If her clients live in your booking system, the agreement needs to say what she holds, what the salon holds, and what she exports on leaving. Settle it in writing on day one, because on the day she goes, whatever wasn't written down becomes whatever each of you angrily remembers agreeing.

Using the CEST tool honestly

HMRC's Check Employment Status for Tax tool will give you a determination, and HMRC stands behind the result if the answers were accurate. That last clause carries all the weight. Answer as the arrangement really runs, on a normal Tuesday, and print and keep the outcome with the agreement. An optimistic answer sheet is no defence at all; it just documents the date you knew which questions mattered.

What it costs to get it wrong

Reclassification means back PAYE and employer's National Insurance on everything she earned, typically going back years, plus penalties and interest, plus holiday pay she was always entitled to. Then the quieter consequence: if she was your employee, her takings were your turnover all along, which can shove the salon over the £90,000 VAT threshold retrospectively, with VAT owed on income you never knew was yours. Two renters at £40,000 each reclassified is £80,000 of turnover landing on your figure in one letter. That combination has closed salons.

If you already have a loose arrangement

Plenty of salons run half-and-half arrangements that grew out of friendship and were never written down, and the way to tidy one is forwards. Decide which model this actually is, and make the facts match it from an agreed date: her own prices, her own stock and a proper agreement if she's a renter, or payroll if she's in truth an employee. What you can't do is paper over history, because a new agreement describing the past three years as something they weren't just adds a document to the file that proves the point against you.

The financial comparison between the two models is its own decision, and this article assumes you've made it. If anything here describes an arrangement currently running in your salon, an hour with an accountant or an employment solicitor costs around £200 and is the cheapest thing in this article by a distance. None of this is legal advice; the NHBF's checklists and HMRC's own sector guidance are the documents to read, and reading them before an inspector does is the whole game.