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Why it’s time for a VAT cut for hairdressers

Why it’s time for a VAT cut for hairdressers

The current VAT system has had a devastating impact on cash flow, confidence and the ability of the sector to recover, writes Maria Evangelou. | Alarmy

5 min read

The #SaveOurSalons campaign is calling on the government to cut the VAT for hair salons from 20% down to 5%, as they have done for the hospitality industry.

Hair and beauty businesses have never felt a greater need for clarity and direction for their survival and growth than now. With the hair and beauty sector either in lockdown (as it is now) or working at a massively reduced capacity as it did for much of 2020, the current VAT system has had a devastating impact on cash flow, confidence and the ability of the sector to recover.

At the heart of every community you will find a hairdresser. These businesses are the heartbeat of every high street. Some hairdressers report clients being down up to 80 percent, while still managing the huge overheads of running a brick and mortar store. However, they are being denied the same help as the hospitality industry though the impact on the sector of lockdown has been similar if not worse.

That’s why with the backing of hair professionals, industry influencers and journalists, a sub-committee of the British Beauty Council launched the #ChopTheVAT campaign last October.

The #SaveOurSalons campaign is calling on the government to cut the VAT for hair salons from 20% down to 5%, as they have done for the hospitality industry.

This is about their survival, and the survival of the high streets and town centres they are at the heart of. The Salon Owners survey published last month found 56% of salon owners said they are considering closing down and 83% of salon owners are making redundancies.

One hairdresser told me: “The margins in hairdressing service are as slim as those in the hospitality sector – shrinking the VAT will have an immediate effect in the cash flow of every hairdressing business in the UK, stopping further redundancies and helping to keep the lights on. This crisis is about survival.”

Extending the hospitality industry 5% VAT to hairdressers would bring long term benefits for the growth of small and often women-led or majority female workplaces

The impact of an ongoing 20% VAT rate in a service industry, even without the additional difficulties that the pandemic brings, has missed three key points.

First, the major cost to the hair and beauty business is labour; this is a fixed cost on which VAT cannot be reclaimed as it can on goods (as is the case in other sectors).

Second, as the product is a 1-2-1 service, one stylist cannot service ten clients in an hour like a restaurant, in addition to a further reduction in capacity of clients with social distancing in place.

Third, increased business costs due to PPE, sanitising etc. means hairdressing business have to spend more money even though production is operating at a lower capacity. Any profit margin in an already low margin sector is squeezed more than ever.

Extending the hospitality industry 5% VAT to hairdressers would bring long term benefits for the growth of small and often women-led or majority female workplaces. Women have all too often been forgotten in this pandemic and in plans for local economic growth where male-dominated sectors receive greater focus and investment.

It’s often missed that VAT is a consumer tax that is collected on the entire turnover at the threshold. That means reaching the VAT threshold comes with effectively being penalised with an immediate drop in revenues of approximately £15,000. There is a significant survival gap for salon businesses after they reach the VAT threshold. It’s an issue that can trip up the strongest of businesses leading to many deciding to close their business when they should be supported to grow them.

As another hairdresser said: “Historically VAT in the hairdressing industry simply limits growth, as hitting the threshold you would have to smash sales out the park, as a mere few thousand pounds won’t keep your business afloat. It is just not feasible to meet an unreachable turnover with a small team. The pandemic and Covid restrictions have simply exacerbated the gap between threshold and profit.” They went on to say, “If we were all given a level playing field of 5% VAT you would see a huge growth in our market and most, if not all, businesses providing VAT to the government,”

The 20% VAT also comes with a direct cost to jobs, with the high likelihood of a high percentage of vulnerable people becoming unemployed overnight (e.g. young stylists and apprentices) as businesses continue to scale back or close.

Salon owner Heidi Nel said: “Lurking VAT cost has forced me to reduce the number of apprentices I can have in the salon and the pandemic has made the situation even worse. Progress is impossible without change and we need government support the reduction to 5%. This is why the Save Our Salons campaign needs all the support it can get.”

British hairdressing is admired the world over with professionals travelling from around the globe to learn from the UK’s leading educators. We need to Save Our Salons and ensure British hairdressing remains at the forefront of the industry worldwide, and supports much needed renewal and jobs in our local high streets.

 

Maria Evangelou is a small businesswoman and a former Salon Owner in the West Midlands.

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