Call for VAT change to help hairdressers

James Talbot (right, with brother George) is due to meet Witney MP Charlie Maynard to voice his concerns

A hairdresser has called on the government to rethink how VAT is applied to the sector due to businesses struggling to make a profit and find staff.

James Talbot, who with his brother George runs three salons in Oxfordshire, is due to meet Witney MP Charlie Maynard to voice his concerns.

He told BBC Radio Oxford: "People are coming through the door. Turnover is high but margins are so low."

The government said it was in the process of reforming business rates.

Businesses have to register for VAT - charged at 20% - when their taxable turnover exceeds £90,000. The threshold was recently increased from £85,000.

But Mr Talbot, who started his business in 2013, said overheads were increasing too, and that it had resulted in other hairdressers trying to find ways to stay below the threshold, such as working from home.

He said: "Our competitors are charging £16 to £18 for a haircut and taking cash only... it's not fair competition. The field's not linear."

He said the cost of taking on apprentices was also becoming too high.

"We regularly see people work for us, get trained and then go and do their own thing, maybe even claim benefits and then do some cash work as well," he said.

"The system doesn't work."

He added: "If we start over-taxation of small independents, big corporations are going to take over small towns and villages, and we're going to see empty spots all around the UK."

Gareth Penn, chief executive of the Hair & Barber Council, warned that the UK Treasury would "lose billions in tax revenue due to structural flaws in the VAT system".

He said reports forecasted employment in the sector would fall by 93%, and a "rising hidden economy" would "deprive the Exchequer of vital employment-related tax revenues and rob young people of a secure future in a job they love".

He said by 2027 there could be no apprenticeships left in the sector.

The current VAT rate for hairdressers is 20%, with the threshold at £90,000

Mr Penn described the VAT burden in the industry as "disproportionate", and that it had incentivised "VAT avoidance tactics such as bunching, disaggregation, and disguised employment".

He called for a split-rate VAT model, taxing labour-based services at 10% VAT.

The British Hair Consortium has also warned that the current tax system is severely impacting the industry.

The association said cutting VAT could increase overall tax take by preventing more workers becoming self-employed or entering the black market.

A government spokesperson said: "We're breathing life into high streets across the UK and levelling the playing field for businesses, including hairdressers, through our plan for change by improving access to finance and reforming business rates.

"Hair salons are already subject to normal business regulations such as health and safety requirements and employer and public liability insurance."