What Does the Spring Budget Mean for Hairdressers?

Last week, the government made the following announcements via its annual Spring Budget. Offering support for small businesses in the hair and beauty sector, the budget directly responded to the NHBF’s call for VAT reform:

1. The VAT registration threshold will increase from £85,000 to £90,000 from 1 April, taking around 28,000 small businesses out of paying VAT.
2. National Insurance will be cut by a further 2p from 6 April, saving the self-employed £650 (combined with previous cuts).
3. There will be a £200m extension of the Growth Guarantee Fund, helping 11,000 small businesses access finance.
4. The fuel duty freeze will be extended for 12 months until March 2025. Combined with the temporary 5p cut also being extended, car drivers will save around £50 this year.
5. There is a new guarantee on rates to childcare providers supporting parents accessing up to 30 hours a week of free childcare.

Caroline Larissey, Chief Executive at the National Hair & Beauty Federation, said:

“We’re pleased that the Government has answered our call for changes to VAT with the raising of the VAT threshold, taking into account inflation. However, there’s more to do. We welcome further discussions with HM Treasury around future VAT reform to ensure a fairer system and to help level the playing field in the hair and beauty sector, including options for reduced rates and tiered rates around the threshold.

“However, the silence was deafening on support for apprentices. National Insurance (NI) cuts will benefit the self-employed, but where is the support for employers? With wages rising in April, very few small and micro sector businesses can afford to take on staff and apprentices and grow the sector. We call on the government to support these businesses, they are largely female entrepreneurs bolstering the high street and championing wellbeing in the community.”

Increase in the VAT Threshold:

The NHBF called for VAT reform ahead of the Spring Budget including the option of raising the threshold. The Chancellor has said the increase of the VAT threshold from £85,000 to £90,000 will help “tens of thousands of businesses”.

Pragmatix Advisory Ltd estimate that this change will impact 105,000 businesses in the economy (both VAT/PAYE registered and unregistered)*. This is 1.9 per cent of all total businesses, and 5,000 of these businesses are from the hair and beauty industry. 

Whilst this will be a welcome change for the businesses impacted, this does not solve the overall problem of the cliff edge – it merely shifts the cliff edge along. There remains a disincentive to grow for many businesses.

Rebecca Munro, Director at Pragmatix Advisory said:

“Our analysis shows that this measure potentially benefits a lot more businesses in the hair and beauty industry than ministers have suggested. Nonetheless, it pushes the cliff edge problem further down the road and creates a bigger pothole for those businesses with a turnover around the £90,000 threshold.”

* Note: Pragmatix Advisory Ltd, authors of the ‘Avoiding the cliff edge’ report, have looked at the businesses, both registered and unregistered, that will benefit from the increased threshold. The numbers are larger than the government’s because they take into account the point at which bunching occurs (around £72,500 in their model) up until the new threshold of £90,000 and then they have subtracted the number of businesses that would have otherwise grown regardless of the tax regime.

More from the NHBF HERE