A business says it is losing customers because they are being forced to pay more VAT.

Master Log Cabins, which is based in Ashberry Avenue, Douglas, says it has lost £300,000-worth of business.

The situation is down to a change in legislation concerning the reduced 5% rate in VAT for certain construction services.

It took effect this month.

The amendment of the Value Added Tax Act 1996 sets out that certain construction services which are provided to eligible buildings (dwellings, residential homes, properties used for relevant charitable purposes and places of worship) are permitted to be charged at the reduced rate of 5% VAT, rather than the standard rate of 20%.

The clarification states that as of January 1, services that provide the construction and repair of buildings within the curtilage of a domestic property, which is not self-contained living accommodation or which is to be used for business purposes like separate garages, sheds, garden rooms or beauty salon rooms, will have to pay the usual 20% VAT.

Master Log Cabins, part of MHS Limited, is a small family-run business, with five labourers.

Steve Maguire, co-director of Master Log Cabins, said: ‘ We provide eco-friendly log cabin style chalets, which give our customers extra space for many different personal uses, ranging from log cabin sheds to children study rooms.

‘Covid hit us hard like any other business, but we manage to get through it, and our business has been doing well even though the cost of materials and transport has been going up.’

In last week’s Tynwald sitting, Jason Moorhouse, Castletown, Arbory and Malew MHK, asked Dr Allinson, Minister for Treasury, how many businesses would be affected by the clarification.

Dr Allinson said that it is a very small number of businesses who would be affected and it was the customers who would pay for the increased VAT, not the businesses.

Both Mr Moorhouse, and Claire Christian, MHK for Douglas South, asked if there would be any additional help for the businesses affected.

Mr Maguire said: ‘This has affected our business incredibly, although we don’t directly have to pay more, as Minister Allinson said in Tynwald on Tuesday the customer will have to bare the brunt of the VAT charge.

‘What he doesn’t understand is that this increase means our products are now too expensive for some customers, and our sales are reducing through cancelled orders.

‘On top of that, orders which we have already taken in 2022 and signed contracts, we have been told if not completed in 2022 we must charge 20% VAT.

‘Of course our customers are very upset about this, and we are at a loss as to how we are meant to do this as we have contracts with them.

‘We have also had orders, which were in negotiation being cancelled now.

‘In total we have lost £300,000 in orders to date, this is detrimental to our business.

He added: ‘We understand that this technically is not a change, and that the 20% should have always been charged, but this has never been advised to us by Customs and Exercise, which is why the clarification had to be brought in.’

He explained that he was not made aware of the change by the Treasury, but found out at a builder’s yard, when a friend told him in October.

‘If we had known far more in advance or if Treasury would have spoken directly to us back in September (apparently when this was first announced) then we would have had a better chance to transition.’

Mr Moorhouse said: ‘I remain really concerned about this situation, whilst this may only affect a small number of companies, that cannot be used as justification for not listening to these concerns.

‘Each of these businesses is as important as any other, they provide employment and the products which many people want.

He added: ‘Given the small number of companies in this situation, I genuinely hope the Department for Enterprise can offer some support.

‘The survival of these businesses is being put at risk, the massive increase in VAT can’t be simply absorbed by these companies as orders fall, the costs of raw materials and disposing of waste increase.

Mrs Christian said: ‘Businesses are finding orders are being cancelled, huge orders in the region of £180,000 just on one project, all because the customer doesn’t want to pay the extra 15%.’