News & Insight

VAT hike will hit dog walkers and hairdressers

Max White

On 1 April these and various other small businesses will be stung with a VAT increase

On 1 April a range of different business types will be hit with a VAT increase. The Government is pushing up the flat-rate VAT for all limited costs traders to 16.5%. For some, that could be an increase of as much as 4.5%.

Those affected are predominately businesses which charge for the services they provide as opposed to the products that they sell. Hairdressers, gardeners, driving instructors, IT contractors, dog walkers, management training consultants and cleaners are all likely to be hit.

Why the rise?

The Government is attempting to crack down on bigger companies which are manipulating their accounts to pay less tax. It says that the changes will level the playing field for all businesses. HMRC also says that it expects to pull in an additional £195 million in the 2017 tax year as a result of the changes.

The flat-rate VAT scheme was introduced more than 10 years ago to make life easier for small businesses. It simplified administration for business owners.

The standard rate is currently 14.5%, but different businesses pay different rates to reflect the expenses they pay in order to provide their goods or services – an accountant, for example, pays 14.5%. But a cleaning firm will pay 12% and a plasterer might pay 9.5%. From 1 April 2017 all traders of a similar disposition will pay a uniform 16.5%.

What will the impact be?

Whilst HMRC takes aim at tax-dodging corporates, it is the hard working smaller businesses that find themselves caught in the crosshairs.

Bosses warn that for some, the increases could be devastating. “This is a huge amount for small businesses to find in an already difficult economic climate”, stressed fish and chip shop owner Carl Heery. He called the changes “an absolute travesty”, adding that: “This money is coming straight from the pockets of the people the Conservative government claim to support the most.”

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