In the current financial climate, renting out space in your hair or beauty salon can seem like an appealing way to generate extra income. For many, this model works well, but it also comes with significant legal and financial considerations. Without proper planning and adherence to UK laws, salon owners risk being fined or facing penalties for what is known as "concealed employment."

Let’s explore what room and chair rental involves, how to stay compliant, and whether it’s the right choice for your business.

In the UK, HMRC (Her Majesty’s Revenue and Customs) has been increasingly scrutinising businesses that rent out chairs or rooms in salons. Concealed employment occurs when someone operating as a "renter" is treated like an employee without the protections and entitlements employees are legally owed.

Salon owners found guilty of concealed employment have faced significant fines and been required to back-pay minimum wage, holiday pay, and pensions to the affected individuals.

To meet HMRC’s requirements, renters must clearly operate as independent contractors. Here’s how to ensure compliance:

• No Control Over Working Hours: Renters must set their own schedules.
• Avoid Calling Them "Your Team": Maintain the distinction between renters and your employed staff.
• They Handle Their Own Bookings and Marketing: Renters must manage their own appointments, client communications, and promotions.
• They Are Self-Employed: Renters must be registered as self-employed with HMRC and have their own tax and National Insurance arrangements.
• They Provide Their Own Products: Renters should supply their own tools and consumables.
• Fixed Rent Payment: Renters should pay a fixed rent all year round, regardless of their income.
• They Set Their Own Prices: Renters must determine their pricing independently.
• They Take the Business Risk: Renters must be seen as running their own business, bearing the risks and rewards.

During an HMRC inspection, your agreement with the renter must clearly demonstrate these terms to prove that they are self-employed.

While room and chair rental can be a viable model, it’s important to weigh the pros and cons specific to the UK market:

Pros

1. Generate Extra Income: Renting out unused space can provide additional revenue.
2. Expand Service Offerings: Renters may offer treatments you don’t, such as specialised facials or hair extensions.
3. No Employment Responsibilities: You avoid payroll, holiday pay, and other obligations associated with employing staff.
4. Ideal for Large Spaces: Salons with multiple chairs or treatment rooms can maximise income by renting to multiple individuals.

Cons

1. Capped Income: The average daily chair rental in the UK (£40–£60) is far lower than the potential income generated by an employed stylist, which can exceed £500 per day.
2. Utility Costs: Rent often includes utilities, and rising energy bills in the UK can eat into your profits.
3. Reputation Risks: You have no control over the renter’s quality of work, which can impact your salon’s image.
4. Client Confusion: Clients may not understand the rental model and hold you responsible for renters’ mistakes.

If you’re thinking about adopting the room or chair rental model, here are some practical steps:

1. Know Your Numbers

Calculate your daily operating costs, including rent, utilities, and maintenance, and ensure the rental income covers these expenses. For example, if your daily costs are £50 and you charge £40 per day for chair rental, you could be running at a loss.

2. Draft Clear Contracts

Use a detailed rental agreement that outlines the renter’s responsibilities, including their independence as a self-employed professional. Make it clear that they are responsible for their own business operations, taxes, and insurance.

3. Vet Renters Carefully

Since you cannot control how renters represent themselves, it’s essential to ensure their professionalism aligns with your salon’s reputation.

4. Monitor Your Business Model

Regularly review your rental income against your expenses and consider if alternative models, such as employing staff, might be more profitable in the long term.

The room and chair rental model works well for some salons, particularly those with unused space or a larger number of chairs. However, it may not be suitable for smaller salons or those heavily reliant on reputation and control over services.

By understanding the legal framework, setting clear boundaries, and monitoring your finances, you can determine whether this approach aligns with your salon’s goals.

While renting out space in your salon can be a great way to generate additional income, it requires careful planning to ensure compliance with UK laws and financial viability. If done correctly, it can offer flexibility and reduce employment commitments, but it’s not without risks.

Take the time to research, create robust contracts, and assess whether the income generated truly benefits your business. For those who execute it well, the room rental model can provide a win-win for both salon owners and renters alike.