Small business owners in the UK’s double-glazing sector are warning that rising material and transport costs are pushing them towards a tax threshold that could undermine their competitiveness and profitability, even as real earnings stagnate.
One installer, speaking in a recent interview, described mounting pressure on margins as inflation drives up the cost of essentials such as fuel and raw materials. While firms are responding by increasing prices, he said these rises are merely compensating for higher input costs rather than generating additional income.
“Materials costs, everything that leads to transportation, is going to go up,” he said. “When we’re charging our prices, we’ll have to increase them by that same amount. The profit we’re making is only going to be the same as last year and probably not as much as it was even three or four years ago.”
The more immediate concern, however, is the interaction between inflation and the UK’s VAT registration threshold, currently set at £90,000. Because the threshold is based on turnover rather than profit, businesses that raise prices to keep pace with costs risk breaching the limit despite seeing little or no improvement in their underlying earnings.
“It’s not about the money you put in your pocket, it’s turnover,” the installer said. “That reflects not how much you earn, but the price you have to charge to cover rising costs. It’s putting us over the VAT threshold.”
Crossing that threshold brings significant consequences. Firms must register for VAT and begin charging an additional 20 per cent on their services, a step that can make them less competitive in a price-sensitive market.
At the same time, administrative burdens increase, including higher accountancy fees and more complex reporting requirements.
For small operators, many of whom rely on local customers and word of mouth, the shift can be difficult to absorb. The installer warned that the additional cost passed on to customers could deter demand at a time when household budgets are already under strain.
“Suddenly we’re making less money than five years ago, but we’ve now got to start charging VAT to customers,” he said. “That 20 per cent extra comes when it’s hard enough to get business anyway.”
The issue reflects a broader phenomenon often described as fiscal drag, in which frozen tax thresholds pull individuals and businesses into higher tax bands as nominal incomes rise with inflation. While widely discussed in the context of income tax, industry participants argue that the effect on VAT registration has received less attention.
A consumer expert responding in the same discussion noted that frozen thresholds have been in place since the pandemic and are increasingly having unintended consequences. “The longer that goes on, the more you’ll start to hear stories like this,” he said, describing it as a “tax rise by sleight of hand”.
However, the installer stressed that the impact of VAT differs in an important respect from income tax. Employees pushed into higher tax bands by pay rises still take home more money overall. By contrast, small businesses increasing prices purely to offset higher costs see no equivalent gain. “With VAT, we’re getting no more in our pocket,” he said. “Prices are rising because of costs. That’s not our profit. That’s just what we have to charge to make the same money.”
Industry participants warn that this dynamic risks creating a cliff edge. Firms approaching the threshold may choose to limit their activity to avoid registering for VAT, potentially constraining growth. Others that cross it may struggle to remain competitive, particularly when competing with smaller operators that remain below the threshold.
The installer said he knew “a lot of companies that are really worried”, adding that the additional burden could affect hiring decisions. “Anyone wanting to employ someone, you’ve lost it,” he said, referring to the increased costs associated with VAT compliance.
The concerns come against the backdrop of a broader cost of living crisis, which has already damped consumer demand for discretionary home improvements. With prices for windows and doors rising sharply in recent years, some installers fear that further increases linked to VAT could push projects out of reach for many households.
Despite these pressures, the installer expressed frustration that the issue has not featured prominently in policy debates. While ministers have highlighted decisions to hold headline tax rates steady, he argued that the structure of VAT means small businesses are still being drawn into higher tax burdens.
“No one seems to be looking at it,” he said.
For policymakers, the challenge lies in balancing revenue needs with the health of small businesses that form a significant part of the construction supply chain. Without adjustments to thresholds or targeted support, industry figures warn that more firms could face difficult choices in the months ahead.
As inflation continues to reshape the economics of small enterprises, the experience of installers in the glazing sector may offer an early indication of pressures building more widely across the UK’s small business landscape.
