26 June 2018
VAT is a topic which really gets salon and barbershop owners going, so there was a massive response to an NHBF survey to collect views for a recent government ‘call for evidence’ on VAT registration thresholds.
At £85,000 the VAT threshold in the UK is considerably higher than in the rest of the EU where it averages around £29,000 which is roughly in line with average earnings. The government has already pledged not to change the UK VAT threshold before April 2020, but the very fact there is a call for evidence suggests that in the longer term things may change.
In its response to the call for evidence, the NHBF has championed the changes members most want to see:
- Raising the VAT threshold significantly for all small businesses, say to £500,000 which would benefit the majority of salons. However, this option is likely to be ruled out because it would cost the Treasury between £3bn and £6bn to implement.
- Reducing the rate of VAT on labour-intensive industries, such as hairdressing, barbering and beauty where wages are the highest cost of doing business and there is little scope for claiming VAT back on products. Some EU member states already pay lower rates of VAT including Ireland (9%), the Netherlands (6%), Poland (8%), Finland (10%) and Luxembourg (8%). So far, the government has resisted NHBF calls for action on this.
- Smoothing the ‘cliff edge’ so VAT doesn’t become payable in full as soon as a trader crosses the threshold, which immediately lands them with a bill of £17,000. Ways this could be done include:
- tiered rates of VAT after crossing the threshold,
- making better use of the flat rate VAT scheme which allows businesses with turnover of less than £150,000 to pay VAT at 13% (or 16.5% for ‘limited cost’ traders)
- Allow labour-service industries to pay VAT at 20% once they reach £85,000 in turnover but only on the portion about £85,000, not the full amount.
Many salons also commented on what they see as unequal treatment of VAT between salons who employ their staff and those using self-employed individuals. Mostly, the earnings of the self-employed would not reach £85,000 as they trade as individual businesses. But a salon employing their staff is treated as one business and will be paying VAT on their combined turnover and therefore having to charge their clients an extra 20%.
Hilary Hall, NHBF chief executive, said, “We already know VAT registration thresholds will stay as they are until at least April 2020, so there will be no overnight changes. The government’s call for evidence is their first step to understanding the key issues and how current VAT policy affects different sectors. We have responded to this, and to a Treasury Committee enquiry on the same topic, to make sure the voice of the hair and beauty industry is heard loud and clear.”