The NHF has surveyed barbers in response to a government ‘call for evidence’ that the VAT threshold needs reducing. 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, more in line with national earnings. The government has said it will not reduce the threshold before April 2020. The NHF is championing the following:
- Raising the VAT threshold significantly for all small businesses (to around £500,000) which would benefit the majority of shops. This would cost the Treasury between £3bn and £6bn to implement, so is unlikely to be accepted.
- Reducing the rate of VAT on labour-intensive industries, such as barbering, 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 NHF 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 shops also highlighted the unequal treatment of VAT between shops who employ their staff and those using self-employed barbers. The earnings of the self-employed would usually not reach £85,000 as they trade as individual businesses. But a shop 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%.
For more information go to www.nhf.info