Category: VAT

Most businesses ask this as a yes-or-no question, but UK VAT does not work that neatly. Whether a business can reclaim VAT on transaction fees depends on who received the service, what the transaction was for, and whether the cost links to taxable business activity rather than a passive investment or an exempt share sale.

How VAT on Deal Fees is Applied in Various Situations

Deal situation	Usual VAT outcome
A trading company issues new shares to raise funds for its taxable business	Often recoverable under the normal rules, because a new share issue is not a VAT supply in itself. If the issue supports economic activity, the related VAT can be input tax, subject to partial exemption if relevant.
A passive holding company buys shares to earn dividends or sell later for gain	Usually not recoverable. Pure shareholding for dividends or capital growth is treated as investment activity, not taxable business activity.
A holding company buys a subsidiary and supplies genuine management services for real consideration	Often recoverable, but only if the holding company is the recipient of the adviser services, carries on economic activity, and makes taxable supplies. Partial exemption can still reduce the claim.
An acquisition is a direct extension of an existing taxable trade	Often recoverable. Such as buying a competitor, a key supplier, a key customer, or a property-owning subsidiary from which the buyer intends to trade.
A business sells existing shares	Usually restricted or blocked, because the sale of existing shares is normally an exempt supply. If the share sale is only incidental to the wider business, there are special partial exemption rules rather than an automatic full block.
The target company incurs vendor due diligence costs	Recovery can be possible for the target if the target is the actual recipient of the services and they were received for its own business.
A deal aborts after fees have been incurred	Recovery can still be possible if there is genuine, objective evidence of an intention to make taxable supplies. Failed projects do not automatically destroy recovery.

How VAT Applies to Common Payment Processing Fees

VAT treatment can vary between payment providers and by the type of service supplied. While many financial services are VAT-exempt, technical or administrative payment-processing services do not automatically qualify for that exemption.

Businesses should therefore check the provider’s invoice, the contracting entity and the nature of each charge before treating transaction fees as recoverable input VAT.

Stripe

Stripe fees are not automatically VAT-exempt. Card-processing services can be subject to standard-rated VAT where the service is treated as taxable payment processing.

The exact VAT treatment can depend on which Stripe entity provides the service, whether the supply is made from the UK or cross-border, and the particular service being charged for. Different treatment may apply to services such as terminal hardware, platform fees, payouts or other additional features.

Where the supply is cross-border, businesses may also need to consider whether the reverse charge applies.

PayPal

Some core PayPal payment services may qualify for the VAT exemption that applies to certain financial services, particularly where the service involves the transfer or movement of funds.

However, this does not mean every PayPal charge is VAT-exempt. Additional merchant services, administrative charges and other ancillary services can have different VAT treatment.

Businesses should review the individual charge and supporting invoice rather than assuming all PayPal fees receive the same VAT treatment.

GoCardless

GoCardless generally charges standard-rated VAT on UK transaction fees. Since April 2020, its UK transaction fees have been treated as taxable supplies rather than VAT-exempt financial services.

Where VAT is correctly charged, a VAT-registered business may be able to reclaim it subject to the normal input tax recovery rules and the use of the service for taxable business activities.

Traditional Banks

Many core banking services are VAT-exempt under the financial services exemption. This commonly includes standard banking and payment services.

However, banks may also provide additional or ancillary services that are taxable. Charges for certain administrative, advisory or other non-financial services may therefore include VAT.

For VAT recovery on bank charges, businesses should check each charge individually to confirm whether VAT has actually been applied and whether it is recoverable under the normal input tax rules, rather than assuming every fee on a bank statement is VAT-exempt.

Why Payment Processing Fees Are Not Always VAT-Exempt

The VAT exemption for financial services does not automatically extend to every service involved in making or receiving a payment.

Following court decisions including Bookit and NEC, HMRC distinguishes between services that actually perform an exempt financial transaction and technical or administrative services that simply facilitate card payments. Card-handling and processing services that only enable a customer to make a payment can therefore be standard-rated at 20%.

The key point is that a transaction fee does not automatically contain reclaimable VAT. Businesses should check whether VAT has actually been charged, identify what service the fee relates to and confirm that the normal input tax recovery conditions are met before including it on a VAT return.

What Decides Whether to Reclaim VAT on Transaction Fees

Three questions usually decide the result. 

1. Was the fee incurred in taxable business activity?
2. Is there a direct and immediate link between that cost and taxable supplies? 
3. Is the business claiming the VAT actually the recipient of the service?

That is why labels like “legal fee”, “corporate finance fee” or “due diligence fee” do not settle the point on their own. The same type of cost can be recoverable in one structure and blocked in another, simply because the underlying activity is different.

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Importance of the Invoice Trail

A second point is often missed: the invoice trail matters. Whether the claimant contracted for the service, was invoiced, paid for it, and made use of it, while general VAT record rules also require valid VAT invoices and records that support the claim.

Using professional accounting services can also help ensure adviser invoices, payments and supporting records are captured consistently before the VAT return is prepared.

Partial Recovery for Mixed Activity

If a business has both taxable and exempt activity, it may only recover the taxable portion unless the de minimis rules help. The current de minimis limit is £625 per month on average and no more than half of the total input tax, with an in-period check and a year-end review.

Practical Takeaways

• Decide early on the recipient entity: Decide before the first engagement letter is signed which entity should receive the service, because attribution is based on actual or intended use when the purchase is received.
• Give the holding company a real taxable role: If a holding company is meant to recover VAT, give it a real taxable role. Genuine management services for more than nominal consideration are a strong starting point.
• Expect partial exemption with loans: If the structure also includes interest-bearing loans, expect partial exemption to enter the picture.
• Don’t ignore the year-end de minimis review: A claim that looks acceptable during the year can be clawed back later if the annual test fails.

Read: Court of Appeal ruling puts VAT on education grants under scrutiny 

How common deal structures are treated

Share acquisitions through a holding company

A holding company does not get recovery just because it owns subsidiaries. If it only holds shares, receives dividends and hopes for a later sale, that is investment activity, and the VAT on acquisition costs is normally not recoverable. 

The position improves where the holding company buys the subsidiary to make taxable management services for consideration. The acquisition costs of such a holding company are part of its general overheads, so the VAT can be deductible only if the holding company receives the adviser services and makes taxable supplies. 

A practical observation here is that vague plans do not help much. If the structure only contemplates charging the subsidiary “at some point later” or only if profits allow, that is weak; official case summaries and guidance both stress the need for genuine, priced services and real consideration. 

Acquisitions that strengthen an existing trade

Not every acquisition needs a separate management charge to support recovery. Share acquisition can sometimes be a direct, continuous and necessary extension of an existing taxable trade, such as buying a competitor, a key supplier, a key customer, or a property-owning subsidiary from which the buyer plans to trade. 

That is a useful point in real deals. If a trading business buys a company to reinforce its own trading operation, the fee can sometimes sit with the buyer’s existing taxable business rather than a standalone investment case. 

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Share Sales and VAT

A sale of existing shares is normally an exempt supply. That is why VAT on legal and advisory fees linked directly to a share disposal is usually a problem, and a wider commercial reason for the sale does not automatically fix it.

Immediate Transaction Matters

That last point matters. Selling shares to raise money for wider taxable trading does not by itself turn the disposal fees into recoverable VAT, because the immediate transaction still matters.

Restructuring Context

There is, though, an important nuance. Some disposals in a restructuring context may fall within economic activity where the disposal is a direct, permanent and necessary extension of the taxable business, but this is fact-sensitive and should never be assumed.

Standard Partial Exemption Method

If the business uses the standard partial exemption method and a share sale is merely incidental to the main business, the value of that share sale should be excluded from the standard method calculation. The VAT on the related costs is then dealt with using normal attribution rules rather than by simply including the deal in the denominator and accepting the result.

Special Method and Residual Costs

If the business uses a special method, certain residual costs on incidental share sales must be apportioned by use. Costs such as:

• Accountants
• Financial advisers
• Lawyers
• Advertising agencies
• Marketing consultants
• Listing and registration services
• Document preparation services

Share Sales Are Not TOGC

One other point saves confusion in practice: a share sale is not a TOGC. Where a limited company changes hands by way of a share transfer, the assets remain owned by the company, so there is no asset transfer to which TOGC rules apply.

Fundraising and VAT

A new share issue is treated differently from a sale of existing shares. The issue of new shares is not a supply for VAT purposes, and related VAT can be recoverable to the extent the issuer’s business generates taxable supplies.

Target-Side Fees

On the seller side, the target company’s own fees can sometimes be overlooked. Vendor due diligence and similar costs incurred by the target may be deductible where:

• The target is the recipient of the services
• The services were received for the target’s business

Aborted Deals

Aborted deals are not automatically lost causes either. If there was genuine objective evidence that the business intended to make taxable supplies, preparatory VAT can still be recoverable even where the project fails before those supplies are made.

A Must Read: Everything About VAT Return Deadlines in the UK

Check the Adviser’s VAT Status

Also check whether there is actually any VAT on the adviser bill in the first place.

• Pure advice, such as advice on capital raising or defending takeovers, is taxable
• A genuine intermediary service in a securities transaction can itself be exempt if it meets the exemption conditions

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How to improve the chances of recovery before the deal closes

The biggest practical point is timing. VAT attribution is based on how the service is used, or intended to be used, when the service is received, so sloppy structuring at the start of the deal is hard to repair later. 

In real transactions, the weak spot is often not the technical rule. It is the evidence pack: the engagement letter is in one company’s name, the invoice is sent to another, and the payment comes from a third. That makes it much harder to show who really bought and used the service. 

Document or step	Why it matters
Engagement letter in the right entity’s name	Helps show which business contracted for the service and was the recipient.
VAT invoice in that same entity’s name	A recoverable claim needs a valid VAT invoice and records that support it.
Payment trail	Official guidance on recipient status looks at who paid for the service as well as who contracted and who used it.
Board minutes, deal papers and business plan	These can provide objective evidence of intended taxable supplies, especially where the deal never completes or charges begin later.
Management services agreement with a real charging model	Helps show that services are genuine, for consideration, and more than nominal.
Actual management invoices after completion	Strong evidence that the structure reflected real taxable activity rather than a vague future intention.
Partial exemption workings	Essential where deal fees support both taxable and exempt activity, including share sales or exempt lending.
Six-year retention of VAT records	VAT records generally need to be kept for at least six years.

A final but important point is VAT grouping. Joining a VAT group does not automatically create recovery, and it does not turn passive investment activity into taxable business activity. 

Where claims usually break down

The most common failure point is assuming that “commercial purpose” is enough. It is not enough to say the deal helped the group overall; what matters is the VAT link between the cost and taxable outputs. 

Other problem areas come up again and again:

• Passive holding activity dressed up as a business activity. Receiving dividends and holding shares is not enough on its own. 
• Management services that are never properly priced or invoiced. A loose intention to charge later is weak evidence. 
• Assuming a later VAT group will rescue old acquisition VAT. It does not do that automatically. 
• Invoices and contracts sitting with the wrong entity. The claimant still needs to show it received, used and paid for the services. 
• Forgetting the share-sale rules in partial exemption. Incidental share sales have their own treatment under both standard and special methods. 
• Ignoring the possibility that the adviser’s own service was exempt. Pure advice is usually taxable, but some intermediary work in securities transactions can be exempt instead. 
• Missing the annual de minimis re-test. Recovery allowed during the year can still be reversed at year end. 

A smaller but still important trap is “stewardship” or group overhead costs. Some group audit, legal, regulatory, brand defence and bid defence costs may really belong to the group as a whole, even if the holding company receives the invoice for convenience. 

How Apex Accountants Can Help Reclaim VAT on Transaction Fees

At Apex Accountants, we keep this area practical. Our focus is not just on whether VAT looks reclaimable in principle but on whether the contract, invoice trail, management model and partial exemption position actually support the claim.

We help clients with:

• reviewing legal, due diligence, corporate finance and other transaction fees line by line
• checking which entity should contract for, receive and pay each adviser
• building evidence for management charges, intended taxable supplies and aborted deals
• calculating partial exemption, de minimis and pre-registration claims
• reviewing VAT grouping points before and after completion
• preparing clear support packs for internal sign-off and external review

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Conclusion

VAT recovery on deal fees is possible, but it is rarely automatic. The strongest claims usually involve one of two positions: the fee sits inside an existing taxable business, or the acquiring company is carrying on real taxable activity and can prove it with proper documents and real charges. 

Claims usually fail for the opposite reasons. The structure is really an investment; the fee links to an exempt share sale, the wrong entity received the service, or the paperwork does not match the story the business wants to tell. 

FAQs on VAT on Deal Fees

Can a holding company reclaim VAT on acquisition fees?

Yes, but not just because it is a holding company. Recovery normally depends on the company being the recipient of the adviser services, carrying on economic activity, and making taxable supplies such as genuine management services for consideration. 

What if the holding company only receives dividends?

That usually points the wrong way. Simply holding shares for dividends or a later capital gain as investment activity, not taxable business activity. 

Do management charges need to be real and priced?

Yes. The services need to be genuine, provided for consideration that is more than nominal, and not left as a vague future idea that may or may not be billed later. 

Does the invoice need to be in the claimant’s name?

In practice, yes, that is the safest position. Whether the claimant contracted for the service, was invoiced, paid for it and used it, and normal VAT rules also require valid VAT invoices and records to support the claim. 

Does joining a VAT group automatically fix the issue?

No. Joining a VAT group does not automatically create recovery and does not turn passive investment activity into taxable business activity. 

Can VAT on share sale fees be recovered?

Usually not in full, because the sale of existing shares is normally an exempt supply. If the share sale is only incidental to the wider business, special partial exemption rules may soften the effect, but that is not the same as an automatic full reclaim. 

Can a partly exempt business still recover all the VAT?

Sometimes. If the exempt input tax is no more than £625 per month on average and no more than half of the total input tax, the de minimis rules can allow full recovery, but the position must still be reviewed at year-end. 

Can the target company recover VAT on vendor due diligence?

It can if the target is the real recipient of the services and the services were received for the purposes of the target’s own business. 

What if the deal aborts?

A failed deal does not automatically kill the claim. Where there was genuine, objective evidence of an intention to make taxable supplies, preparatory VAT can still be recoverable even if the business never reaches the point of making those supplies. 

Can pre-registration VAT on deal fees be reclaimed?

Potentially, yes. For services, normally a six-month lookback before registration, while goods can go back four years, but only where the costs were bought for the taxable business that is now registered.

The question, “Do hairdressers charge VAT in the UK?” is one that many salon owners, freelance stylists, and mobile hairdressers often ask. The answer depends not on the type of business but on turnover. Like all other UK businesses, hairdressers must follow HMRC’s VAT (Value Added Tax) rules, which are closely tied to income thresholds. Once a business grows beyond a set level, VAT registration becomes compulsory, and this has direct consequences for pricing, profit margins, and customer perception.

This article provides a detailed explanation of VAT requirements for hairdressers. It covers the registration threshold, rules for different business models, exemptions, the standard VAT rate, and the practical effects on the hairdressing industry. It also highlights how Apex Accountants can help hairdressers manage VAT effectively.

What is the VAT registration threshold for hairdressers?

The VAT registration threshold is the first factor to consider. For 2026/27, the VAT registration threshold remains £90,000 in taxable turnover. This means that if a hairdresser, salon, or barber shop has taxable turnover of more than £90,000 in any rolling 12-month period, they must register for VAT with HMRC. 

It is important to note that this is a rolling 12-month period, not a tax-year test. Businesses should review their taxable turnover regularly. Compulsory VAT registration applies once taxable turnover for the previous 12 months goes over £90,000. A business must normally register within 30 days of the end of the month in which it exceeded the threshold. 

On the other hand, if turnover later drops below £88,000, a hairdresser may apply for deregistration. This flexibility helps businesses that experience seasonal fluctuations or temporary drops in revenue. However, many businesses in the sector deliberately remain under the threshold to avoid the administrative burden and financial implications of VAT.

How the £90,000 rolling VAT threshold works 

A salon taking £7,500 per month would have a taxable turnover of exactly £90,000 after 12 months. That alone does not exceed the VAT registration threshold. However, if its rolling 12-month taxable turnover rises above £90,000, it must register for VAT. For example, if turnover reaches £90,500, the business must normally register within 30 days of the end of the month in which it exceeded the threshold. 

Do all hairdressers have to charge VAT once registered?

The obligation to charge VAT does not depend on the type of business. Whether someone is a self-employed stylist, a salon owner, or a mobile hairdresser, the same rule applies: once the threshold is exceeded, VAT registration is compulsory and VAT must be charged.

• Independent and self-employed hairdressers must register when their taxable turnover from services and product sales goes above £90,000 in a rolling 12-month period. Below the threshold, VAT registration is not compulsory, although voluntary registration is available.
  
• Salon businesses must take a wider view of turnover. Income from services, retail sales, and even chair rental fees from freelancers all count toward the threshold. Once this total passes £90,000, VAT registration is unavoidable.
  
• Chair rental arrangements can tip many salons into VAT. HMRC clarified that chair rentals are taxable at the standard rate, meaning this income cannot be excluded.
  
• Mobile hairdressers, who often earn below the threshold, usually do not charge VAT. However, if their earnings grow – perhaps by catering to events, building a larger client base, or hiring additional help – VAT may come into play.
  

Employees working in salons never charge VAT personally. Instead, the salon or company they work for is responsible for VAT registration and collection.

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Are there any VAT exemptions for hairdressers?

There are no sector-specific VAT exemptions for hairdressers. In other words, there is no special rule that removes hairdressers from the VAT system. All standard services, such as cutting, colouring, and styling, are taxable at the standard rate.

Businesses whose taxable turnover remains below the £90,000 registration threshold are not normally required to register for VAT. This is a registration threshold rather than a VAT exemption. Hairdressers who are not VAT-registered do not charge VAT on their taxable services and cannot reclaim input VAT on business costs. Some choose to register voluntarily to reclaim VAT on eligible expenses. Once registered, they must account for VAT on their taxable services and sales. 

What VAT rate applies to hairdressing services?

Hairdressing services are subject to the standard VAT rate of 20%. Unlike some sectors, such as hospitality, which temporarily benefited from a reduced VAT rate during COVID-19, hairdressers have always remained at the standard rate.

For example, a £50 haircut advertised before VAT becomes £60 once VAT is added. Many salons therefore prefer to display VAT-inclusive prices to avoid confusing clients. While customers of VAT-registered businesses pay more, customers of smaller, unregistered salons or mobile hairdressers do not pay VAT on top of quoted prices.

Some salons use HMRC’s Flat Rate Scheme. Under the scheme, a hairdressing business still charges the normal VAT rate to customers but calculates the amount it pays to HMRC using a flat-rate percentage. The Flat Rate Scheme percentage for hairdressing and other beauty treatment services is 13%, although businesses classed as limited-cost businesses may have to use the higher 16.5% rate. The scheme can simplify VAT accounting, though it may not suit every business. 

How does VAT affect pricing and profits for hairdressers?

VAT for hairdressers has a significant impact on pricing. Once registered, a hairdresser has two main choices:

1. Increase prices by around 20% so the VAT is passed directly to customers. This can make services appear less competitive compared to non-registered stylists.
   
2. Absorb the VAT cost and keep prices the same, but sacrifice part of the profit margin. This is often unsustainable in the long term.
   

Because hairdressing is labour-intensive, salons may have fewer VAT-bearing costs to reclaim than some other businesses. Wages do not carry VAT, while chair rental supplied by a VAT-registered salon is generally taxable. The amount of input VAT a salon can reclaim will therefore depend on its particular costs and business arrangements. 

This pressure has led to calls within the industry for a reduced VAT rate, but hairdressing services continue to be subject to the standard VAT rate in 2026/27. 

Conclusion: Do hairdressers charge VAT in the UK?

• Hairdressers only charge VAT if they are VAT-registered.
• Registration is compulsory once turnover exceeds £90,000 in any rolling 12 months.
• VAT applies equally to salons, self-employed stylists, and mobile hairdressers.
• All services are taxed at the standard 20% rate.
• No specific VAT exemptions exist for the sector.

Smaller operators below the threshold do not charge VAT, which is why many remain outside the VAT system. Larger salons and growing freelancers, however, must register and adjust their pricing strategies accordingly.

How Apex Accountants can help hairdressers with VAT

For many in the hair and beauty industry, VAT is one of the most difficult financial challenges. At Apex Accountants, we work closely with salon owners, freelance stylists, and mobile hairdressers to make VAT management simpler and less stressful.

Our VAT services for hairdressers include:

• Monitoring turnover and advising when VAT registration is required.
• Registering businesses for VAT and handling deregistration when appropriate.
• Preparing and filing VAT returns with HMRC.
• Advising on pricing strategies that maintain competitiveness while staying compliant.
• Exploring schemes such as the Flat Rate Scheme to simplify VAT reporting.
• Representing clients in communications with HMRC and ensuring all obligations are met.

By partnering with Apex Accountants, hairdressers can focus on delivering great service to clients while we take care of VAT, compliance, and financial strategy.

Book a free consultation with Apex Accountants today and let us help your hairdressing business grow with confidence.

FAQs on VAT for Hairdressers and Beauty Salons in the UK

1. What is the VAT rate for hairdressers in the UK?

Hairdressing services in the UK are taxed at the standard VAT rate of 20%. This applies to all haircuts, styling, colouring, and similar services once a business is VAT-registered.

2. Is there VAT on beauty products in the UK?

Yes. Most beauty products, such as shampoos, conditioners, hair dyes, and cosmetics, are subject to the standard VAT rate of 20%. Only a few items, like certain health-related products, may fall under reduced or zero rates.

3. Do self-employed hairdressers have to pay VAT?

Self-employed hairdressers only need to register for VAT if their taxable turnover exceeds £90,000 in any rolling 12-month period. Below this threshold, they are not required to charge VAT, although voluntary registration is allowed.

4. Do you charge VAT on chair rental in a salon? 

Chair rental is generally a taxable supply. If a VAT-registered salon rents chair space to a self-employed stylist, the salon normally charges VAT on that rental income. Chair-rental income also contributes to the salon’s taxable turnover when determining whether it needs to register for VAT. 

5. Do self-employed hairdressers pay tax to HMRC?

Yes. Self-employed hairdressers must submit a self-assessment tax return each year and pay income tax and national insurance on their profits. VAT is separate and only applies if they cross the registration threshold.

6. Are beauty salons required to be VAT registered?

A beauty salon must register for VAT once its taxable turnover exceeds £90,000 in a rolling 12-month period.  If it remains below the threshold, registration is not required. Some salons choose to register voluntarily to reclaim VAT on expenses.

7. What is the VAT threshold in the UK?

For 2026/27, the VAT registration threshold remains £90,000. Businesses whose taxable turnover goes over this amount in a rolling 12-month period must register with HMRC. The VAT deregistration threshold remains £88,000. 

8. Do hairdressers have to pay VAT on their services?

Yes, once registered. Hairdressers who cross the VAT threshold must add 20% VAT to all their services. Those below the threshold do not charge VAT to customers.

9. Are beauty treatments subject to VAT in the UK?

Yes. All standard beauty treatments, such as facials, manicures, and waxing, are taxed at the 20% VAT rate when the salon or beautician is VAT-registered.

10. Does hairdressing attract GST instead of VAT?

No. The UK does not use GST (Goods and Services Tax). Hairdressing services in the UK are covered under VAT, with the standard rate of 20% applying to all taxable services.

11. Is VAT always 20% for everything in the UK?

No. While many goods and services, including hairdressing and beauty, are taxed at 20%, some items fall under reduced rates (5%) or are zero-rated. For hairdressers, however, services and most products are charged at the standard 20% rate.