The big change in the UK hairdresser registering as self-employed is that Darren Messias has created the biggest threat to the industry he saw in his three-plus-year career.
The stylist and managing director of the East Midlands hair franchise says his business is undercut by “rentakia” salons that allow hairdressers to use space and some equipment, but remain independent for tax purposes. They are not employed in salons, so businesses will have less VAT and employer national insurance.
“There are two salons side by side, and we have the same number of people, the same products and services,” says Messias. “One model is employed like us, and therefore we pay for our contributions to VAT, national insurance.
“Next to be “disguised employment” or “rentals.” Business owners have found a way to not pay VAT. It doesn’t feel like a level playing field.
Increases in labor costs, including the increase in national minimum wage and employer NI, have created certain pressure on salon owners. According to a study representing the industry’s leading UK hair consortium and CBI economics, salons have been hit three times more harder with employment taxes and VAT than their comparable independent high street retailers. This is because they are very labor-intensive – because about 60% of the costs are wages – and they cannot recover sales taxes in the way of retail or hospitality businesses.
As a result, many hairdressers have quit their professions and have their staff self-employed to reduce tax bills. This creates a “skewed competition between VAT registered and non-registered companies,” according to BHC and CBI Economics.
Their report estimated that discrepancies have reduced VAT receipts by £2.4 billion since 2009 with a decline in employment. This warned that employment in the beauty industry could fall by 93% by 2030, creating a sector with the rights associated with being an employee.
Like Messias, Donafine, who started out as an apprentice in 1974 and now owns a femal ego hair and beauty salon in Hal, finds it difficult to pass through each month as costs rise and rivals choose to use the self-employed model.
“Some of them are done in the palm of your hand,” says Finn, who has six employees and one trainee. “I feel like I’ve been kicked in the teeth because I’m legal.”
Salon owners also warn that apprentices can become difficult to provide, and that training costs are unacceptable for many, which can ultimately become obsolete. “If you’re self-employed, you’re not going to share your wages and teach beauty,” Finn added.
Messias had taken up about 50 apprentices a year before the pandemic, but last year only 21 recruited. He receives government funding for training, but despite strong interest from the younger cohort who wants to acquire the occupation, the number is predicted to decrease as salon owners are unable to pay additional costs.
The BHC argues that self-employment is a “completely legitimate employment situation.”
However, the industry wants reforms, including a split-rate VAT model. This means that labor-based services will be taxed at 10% to recognize the cost structure, compared to the current 20%. It also suggests that businesses will lower revenue levels, which now begin paying £90,000 VAT as a way to combat disguised employment.
“Without a certain levelling of the arena, we will see a full decimation of employment,” warns BHC co-founder Toby Dicker.
Last year, 63% of salon workers were self-employed, which is projected to rise to 76% by 2030. Employment in this sector has been reduced by 69,400 workers over a decade.
For some hairdressers, the last straw was the employer NI change introduced in the October budget.
“The hairdresser is unable to address the latest changes due to (high) labor costs,” says Katia Miravik Davies, managing director of Myra and Davis, who have four salons in south London.
This month, Myra and Davis decided to close what appears to be the academy space. “I think the budget really puts an end to that. I have to say this is the first time we’ve had it in 15 years that we’ve reduced,” says Miravic Davis.
“There is a very strong and broad international precedent due to low VAT for the services industry. This doesn’t seem like the government is ready to engage.”
A spokesman for the Treasury said, “We are leveling the playing field for business on the Boulevard, including hairdressers, permanently reducing business rates, removing £110,000 (business rate relief) caps for over 280,000 retail, hospitality and leisure business assets, and earning corporate taxes during the Capitol.”
