Tightening self-employment legislation may impact hair and beauty industry

During the Queen’s Speech Boris Johnson gave an early indication that the government is concerned that the rising rates of self-employment across many sectors, including hair, barbering and beauty, could come at a cost for the government and taxpayers in lost revenues.  

He said: “We will increase fairness and flexibility in the labour market by stopping employers and workers experiencing significantly different outcomes from flexible forms of working.”

This has led to speculation that the new rules tightening up IR35 legislation from April next year may signal further changes to come which could have an impact on both employers and self-employed people working in our industry.

So what’s IR35?
It’s legislation which allows HMRC to collect additional payments if a self-employed person, referred to as a contractor by IR35, operates through a personal service company but would otherwise be an employee of the salon.

This means the contractor has to make an extra payment to compensate for the additional tax and National Insurance that HMRC would have received on an equivalent employee’s wages. 

A personal service company is usually a limited company which has been set up to provide the services of a single contractor who is usually the company director of the business.

Who does IR35 apply to?
If the contractor is in the private sector, the rules change in April 2020.  Large or medium sized companies will have to decide whether IR35 applies and put contractors onto their payroll if it does.  For this reason, many banks and insurance companies are no longer taking on contractors.  Small businesses will be exempt if they have 50 or less employees, their turnover is less than £10.2million and their balance sheet shows £5.1million or less.

If the contractor is working in the public sector IR35 is already operating. If the public sector body decides IR35 applies they must put the contractor on their payroll and deduct tax and National Insurance.

"We want to see salons with employees competing on a level playing field with those who don’t have employees"

What does this mean for hair and beauty?
Most hair and beauty salons will not be directly affected by IR35 because of their size. 

However, salons are already responsible for deciding the employment status of any self-employed people working in their salon and putting them on the payroll and making deductions if necessary.  IR35 does not apply if the salon and their genuinely self-employed contractors are working strictly within the NHBF chair/room renting agreements.  

Hilary Hall, NHBF chief executive said, “We have been urging the government to come up with a clear definition of what counts as genuine self-employment. We want to see salons with employees competing on a level playing field with those who don’t have employees. The government has gone some way towards implementing the Good Work Plan but has failed to grasp the thorny issue of employment status. The Queen’s Speech may be the first indication that they’re having a rethink.  In the meantime, salons should take tax advice if they are not sure whether IR35 applies to them, especially large salons or salon groups.  IR35 is complicated and the answers are likely to be different for different businesses.”

The Good Work Plan sets out the government’s plans for the future of work, taking into account flexible, modern working practices and making sure that workers’ rights are protected.  One of its key strands covers employment status.

https://www.gov.uk/government/publications/good-work-plan

For more information and to download the NHBF chair/room renting agreements (for Members only) please go to: https://www.nhf.info/home/