Technically speaking, this isn’t a change. But HM Revenue & Customs (HMRC) became aware that their guidance was being misinterpreted, so they have clarified their position with regards to VAT on chair rentals.
From 1stOctober 2012, if the salon you rent your chair from is VAT registered, they will have to charge you VAT on the rent they charge you. So it is likely that 20% (the current rate of VAT) will be added to chair rental cost from now on.
The only probable instance where VAT won’t be charged is if you rent an entire floor or room from the salon, you can control who enters the area you occupy and the salon does not provide you with other services such as laundry, book/ reception services etc.
I imagine that your business is not VAT registered, because your annual turnover does not exceed the VAT registration threshold of (currently £77,000). On this basis, you cannot recover the VAT charged to you by the salon and it will in effect be an additional cost to your business. As a result, you may feel you need to increase your prices to your customers, in order to maintain your profit levels.
If you would like to discuss this further, please do not hesitate to contact your local TaxAssist Accountant.
By Jo Nockels
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.