Two thousand hair and beauty salon owners and workers have signed an open letter calling on Chancellor John Healey to halve the VAT rate paid by the sector to 10 per cent, with the support of all industry trade bodies, according to the campaign.
The letter is accompanied by new research from the British Hair Consortium (BHC), which represents more than 50,000 professionals in the UK hairdressing and beauty industry. The consortium said the sector was “at the point of collapse” without immediate cuts.
According to BHC, the sector lost almost a quarter of its employees last year, 21,400 people, which is said to be the highest proportion of any profession. The consortium stated that the equivalent of 20 working salons were lost every working day.
The study also found that hair salon apprenticeships have fallen by 78 per cent since 2015. The BHC says they will disappear entirely by the end of this parliament.
It is estimated that the shift of labor into self-employment will cost the government £1.2bn in lost tax revenue by 2025, and it is said that tax avoidance and evasion has become the industry norm.
Toby Dicker, founder of BHC, said: “The main reason is the impact of VAT on a service-based industry like ours.”
“It’s getting so bad for most owners, the only way they can keep going is to avoid VAT and Employers’ National Insurance, artificially falling below the 90,000 VAT threshold,” he said.
Businesses must register for VAT if their taxable turnover crosses the £90,000 registration threshold set by HMRC.
Dicker said that the owners “get rid of the staff and then hire the chairs as independent contractors”, adding: “They do the same work as before and in the same salon, but without the rights and protections that come with being an employee and without paying National Insurance and often without paying VAT.
“We are not asking for a bailout, but structural rebalancing,” he said. They called for a split-rate VAT model, similar to that used in Ireland, where reduced rates would apply to labour-intensive services.
The BHC said hair and beauty salons pay five times more in employment tax than other independent retailers and give three times more VAT on turnover.
A BHC survey reported by Business Matters in November 2024 found that 40 per cent of salon owners are considering closing following an increase in employers’ National Insurance contributions.
Collette Osborne, owner of Nottingham-based Hairven salon, said: “Lowering VAT to 10% will encourage businesses to hire, train apprentices, increase turnover and ultimately build a wider and more sustainable tax base.”
Osborne said more than 80 per cent of people working in the industry were women, while hospitality was the only sector that appeared to be in line for tax reform. He said it had led to female owners and employees questioning how sexist the Labor Party was, adding: “Would the lack of interest be any different if it were run by men – and mostly employed by men?”
Last year a number of salon owners displayed signs banning Labor MPs from their premises in protest at rising business and National insurance rates.
Hellen Ward, vice-president of the British Association of Women Employers and co-founder of the Salon Employers’ Association, said: “Without structural changes to VAT and NI, those involved in ‘hard work’ industries such as ours will continue to see the destruction of opportunities for young people by reducing the number of apprenticeships and the workforce.
“Hospitality seems to be gaining more support, so the question is what jobs are for boys?” she said.
“What makes it even more frustrating is that last year we contributed to a Commons Committee report, written by Liam Byrne, which called for significant tax reform for small businesses,” Dicker said. “But this is a piece of work that the Government is ignoring.”
The committee, chaired by Byrne, published its findings in February. He suggested that the government reform the VAT system to remove the cliff edges that hinder its growth, including a review of the registration threshold, “especially in labor-intensive sectors”.