Chair and room rental in salons: VAT

Q: How does this work in practice?

Illustration only. A VAT registered salon rents four chairs to self employed stylists at £150 a week each, with reception, booking, towels and refreshments included. The rent is a standard rated supply under Item 1(ma). At 20%, if the agreement says nothing about VAT, each £150 is treated as VAT inclusive and contains £25 of VAT. A stylist who is not VAT registered cannot reclaim that VAT, so it is a real cost to them. Upstairs, the same owner lets a self contained treatment room to a beauty therapist who runs her own bookings, brings her own towels and products, and has her own entrance. No services are provided beyond heat, light and cleaning of the shared stairs, and the building has not been opted. That room rent is likely to be exempt, and the owner will need to consider the effect on input tax recovery under the partial exemption rules.

Q: What are the common mistakes?

Calling it rent and treating it as exempt. The label in the agreement does not change the liability; Item 1(ma) applies to the grant of facilities whatever it is called. Relying on a separate room while still providing services. Note 17 is lost if the salon or a connected person provides any hairdressing related service, even one shared with other stylists. Agreements that do not match practice. A contract that mirrors the guidelines will not help if the salon sets prices, owns the client list and banks the takings. Ignoring VAT in the price. If the agreement is silent, the payment is treated as including VAT. The NHBF guidelines expect the agreement to state that VAT will be charged where applicable. Assuming beauty rentals follow the hairdressing exception. Note 17 belongs to Item 1(ma); for other treatments the general single supply rules decide, and HMRC's starting point for nail and tattoo studios is that a bundle of facilities is taxable. Salon structures are a frequent subject of an HMRC VAT compliance check, so the written agreement, the till records and both parties' accounts should all tell the same story. If HMRC opens a check into your return, tax investigation insurance pays your accountant's fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Since 1 October 2012, a salon that rents a chair or space to a self employed hairdresser or barber makes a standard rated supply, because Item 1(ma) of Group 1, Schedule 9 to the VAT Act 1994 takes facilities used wholly or mainly for hairdressing out of the property exemption. A separate room, floor or clearly defined area can still be exempt, but only if the salon (or anyone connected with it) provides no hairdressing related services such as reception, booking or towel laundry. Beauty, nail and tattoo rentals are judged under the general rules, and HMRC usually treats a bundle of salon facilities as standard rated.

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Why is chair rent not exempt like other rent?

Most grants of an interest in property, or a licence to occupy property, are exempt under Item 1 of Group 1. Chair rental fails that test for two reasons. First, HMRC Notice 742 (paragraph 2.7) lists the rental by a hairdressing salon of chair spaces to individual stylists, and the hire of tables in nail bars to self employed manicurists, as examples of supplies that are not licences to occupy. Second, even where a stylist does have a licence over the chair space, HMRC’s property manual at VATLP19820 says the salon is supplying other elements, such as use of washbasins, reception and a client waiting area, that are an integral part of the supply rather than a better means of enjoying the space.

HMRC has always taken that view. The courts agreed before the law changed: in Denyer (CH/2007/APP/0361) the High Court found the package was the supply of all the facilities needed to run a hairdressing business, and Holland and Vigdor (CH/2007/APP/0663 and 0664) reached the same result. The 2012 legislation put the position beyond argument for hairdressing.

What does Item 1(ma) actually say?

Item 1(ma) excludes from exemption “the grant of facilities to a person who uses the facilities wholly or mainly to supply hairdressing services”. Note 17 then carves out a narrow exception. The exclusion does not apply to a grant that gives the tenant exclusive use of a whole building, a whole floor, a separate room or a clearly defined area, unless the person making the grant, or a person connected with them, provides or makes available, directly or indirectly, services related to hairdressing for the tenant’s use.

Note 18 defines services related to hairdressing as the services of a hairdresser’s assistant or cashier, booking appointments, laundering towels, cleaning the facilities granted, making refreshments and other similar services typically used in hairdressing. It does not include utilities or cleaning of shared areas of a building, and it does not matter if the services are shared with others. Note 19 applies the connected person test in section 1122 of the Corporation Tax Act 2010, so a salon cannot escape by having a sister company run the reception desk.

So when is a room exempt?

Only where the stylist has exclusive use of a separate room, floor or defined area and the landlord side supplies nothing beyond the space, utilities and cleaning of common parts. VATLP19820 adds that providing utilities does not automatically make a rental exempt; the facts decide. Even a qualifying room is exempt only if the owner has not opted to tax the building, as explained in the guide to the option to tax.

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Does the same rule apply to beauty therapists, nail technicians and tattooists?

Item 1(ma) is limited to hairdressing, so other treatments fall under the ordinary single supply analysis. The outcome is often the same. Notice 742 says hiring tables in nail bars to self employed manicurists is not a licence to occupy, and VATLP19830 states that HMRC applies a similar approach to nail studios and tattoo parlours. A therapist who rents a treatment room with use of the salon’s reception, booking system, laundry and products is likely to be receiving a standard rated supply of facilities. A bare room let on its own terms, with exclusive use and no salon services, is more likely to be an exempt licence to occupy, subject to any option to tax.

Where one renter does both hair and beauty work, the test is whether the facilities are used wholly or mainly to supply hairdressing. A space used mainly for hair falls within Item 1(ma) in full.

Who is actually supplying the customer?

Before looking at the rent at all, HMRC asks who makes the supply of hairdressing to the public. Its VAT Taxable Persons Manual (VTAXPER68600) sets out three possibilities:

The stylists are employees, so the salon supplies the customer and accounts for VAT on all takings.
The stylists are self employed but supply their services to the salon, which makes an onward supply to the customer. The salon still accounts for VAT on gross takings.
The stylists supply customers directly, and the salon supplies facilities to the stylists in return for chair rent.

Only in the third case is chair rental the salon’s supply. HMRC tests this against guidelines originally agreed with the National Hairdressers’ Federation (VTAXPER69100). Indicators include the stylist setting their own prices and hours, keeping their own client records, being free to buy products from any source, clients contracting directly with the stylist, and takings collected centrally being the stylist’s property and handed over or paid into the stylist’s account. VTAXPER68900 tells officers to check working practice as well as the written agreement, and to compare annual accounts: whether stylists declare gross takings, show chair rent as an expense, and whether the salon shows chair rent as income. The question of whether a salon acts for itself or for the stylist when it takes payment is covered in agent or principal for VAT.

How does chair rent affect VAT registration?

Chair rental income is taxable turnover of the salon. A salon must register if its taxable turnover for the last 12 months goes over £90,000, or is expected to go over £90,000 in the next 30 days (see the VAT registration threshold). Each self employed stylist who genuinely supplies customers directly looks at their own takings against the same threshold. VTAXPER69000 confirms that in that model output tax is due on a stylist’s gross takings only if they exceed the registration threshold.

That structure is legitimate where it reflects reality. Where it is a paper arrangement designed to keep one business under the threshold, HMRC can look through it, as described in the guide to business splitting.

How does this work in practice?

Illustration only. A VAT registered salon rents four chairs to self employed stylists at £150 a week each, with reception, booking, towels and refreshments included. The rent is a standard rated supply under Item 1(ma). At 20%, if the agreement says nothing about VAT, each £150 is treated as VAT inclusive and contains £25 of VAT. A stylist who is not VAT registered cannot reclaim that VAT, so it is a real cost to them.

Upstairs, the same owner lets a self contained treatment room to a beauty therapist who runs her own bookings, brings her own towels and products, and has her own entrance. No services are provided beyond heat, light and cleaning of the shared stairs, and the building has not been opted. That room rent is likely to be exempt, and the owner will need to consider the effect on input tax recovery under the partial exemption rules.

What are the common mistakes?

Calling it rent and treating it as exempt. The label in the agreement does not change the liability; Item 1(ma) applies to the grant of facilities whatever it is called.
Relying on a separate room while still providing services. Note 17 is lost if the salon or a connected person provides any hairdressing related service, even one shared with other stylists.
Agreements that do not match practice. A contract that mirrors the guidelines will not help if the salon sets prices, owns the client list and banks the takings.
Ignoring VAT in the price. If the agreement is silent, the payment is treated as including VAT. The NHBF guidelines expect the agreement to state that VAT will be charged where applicable.
Assuming beauty rentals follow the hairdressing exception. Note 17 belongs to Item 1(ma); for other treatments the general single supply rules decide, and HMRC’s starting point for nail and tattoo studios is that a bundle of facilities is taxable.

Salon structures are a frequent subject of an HMRC VAT compliance check, so the written agreement, the till records and both parties’ accounts should all tell the same story.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.