Beauty salons call for raise to VAT threshold following NHF survey

In reaction to the Government’s “call for evidence” on VAT registrations, UK beauty and hair salons have stated that they want more equal treatment between businesses that employ staff and those who are using self-employed individuals.  

Trade association the National Hairdressers’ Federation (NHF) collected views from its beauty and hair members on the UK’s current VAT threshold, which is at £85,000 (higher than the rest of the EU where it averages around £29,000), as well as finding out how the VAT policy affects different sectors, to help the body put forward suggestions for change.

Many in the business commented that they believe there is unequal treatment of VAT between salons who employ staff and those using self-employed individuals.

They said earnings of the self-employed would not reach the UK’s current threshold as they trade as individual businesses, while a salon employing staff is treated as one business and will pay VAT on their combined turnover, resulting in having to charge their clients an extra 20%.

The Government has pledged not to change the UK VAT threshold before April 2020, but the fact there is a call for evidence suggests that things may change in the long term.

Three changes the NHF will be championing for its members are:

• Raising the VAT threshold significantly for all small businesses – “say to £500,000, which would benefit most salons. However, this option is likely to be ruled out because it would cost the Treasury between £3 billion to £6bn to implement,” said the NHF. 

• Reducing the rate of VAT on labour-intensive industries such as hairdressing and beauty – “[These industries are] 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%), Netherlands (6%), Poland (8%), Finland (10%) and Luxembourg (8%). So far, the Government has resisted NHF calls for action on this,” the NHF said.

• 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,” said the NHF. “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.”

Hilary Hall, NHF 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.”