The Big Debate: Should Salons be VAT Registered?
Two salon owners discuss the pros and cons of salons being VAT registered. In an industry that is extremely labour intensive, the current VAT system is a point of much contention particularly for smaller businesses. Here two business owners weigh in on the debate.
Yes salons should be registered
Janet Maitland, managing director at Janet Maitland Hair Excellence, Durham
“Benjamin Franklin once said ‘there are only two things certain in life: death and taxes.’ When you run a business, you are responsible for many things and tax is one of those responsibilities. We must pay it so our country can run. It goes towards vital public services such as the NHS, the police, fire services and everything we rely on and take for granted until we need them.
I am completely happy to pay my VAT because I believe it’s always important to work with integrity and honesty. As a salon owner you are a role model for other members of staff and if you want to create a respectful and honest workforce it needs to start at the top.
In saying this, it’s important to note that around 50% of the turnover in our industry goes to pay wages and therefore cannot be claimed back in the VAT calculation. Purchases are usually around only 12% to 15% of turnover and this is almost all that we can reclaim. It would be a huge help to hairdressing if we had some kind of concession for being such a labour-intensive industry and one which contributes billions of pounds to the UK economy.
I believe that avoiding VAT by creating ‘rent a chair’ salons or not declaring your true turnover is in my opinion a very short sighted and unfair way of running a business. These salons are not contributing to the burden of running this country so I am happy to pay VAT but I think it is only fair that we should all be on a level playing field.
Finally, I have three hair and beauty salons and pay approximately £80,000 per annum in VAT. I am proud to say my company is completely honest and I can sleep in bed at night by using my energy to move the business forward and not worrying about a knock on the door from the VAT man.”
No, it’s a little more complicated than that
Adrian Allen, salon owner at Adrian Allen Salon and Adrian Allen Academy, Rotherham, South Yorkshire
“Over the past two weeks I have come into contact with over 60 salons – none of which are VAT registered. As a VAT registered salon, I found it interesting, so I decided to question further. It is a general feeling that there is very little motivation for small businesses to put in the effort to grow when as soon as the turnover hits £85,000 they have to increase their prices by 20%.
In an industry that is extremely labour intensive, stylists are 95% of the finished product and the wage bill is on average 50% of turnover so I can see why they would feel this way with the current VAT system.
In effect the workers are attracting tax twice – once on their income and then the VAT. It is not just our industry that has taken this attitude I took the time to speak to some chartered accountants and learned that beauty salons, restaurants, joiners, builders, plumbers and many more trades and small enterprises felt the same with many of them working only a three-day week.
Adding 20% to your pricing does not allow for competitive advantage so I feel a fairer system would be to allow businesses to take off their wage bill before calculating the VAT. All businesses would pay VAT but labour-intensive industries would pay only 5% VAT.
With a struggling high street and online shopping becoming increasingly popular there really does need to be a greater incentive for bricks and mortar businesses. The government is continually trying to drive up the minimum wage which I agree with but I don’t think the current VAT system is helping businesses that would typically employ people at that level.
I’m sure most businesses would rather pay higher wages than give it up as VAT. Our economy really does need to start growing from the bottom up and the only way is to help the businesses that have the potential to grow actually grow.
This is a matter that I have highlighted to John Healey MP and his colleagues – some of which are involved heavily in the regeneration of the high street so I will keep HJ’s readers informed as and when I receive any updates.”