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Up to 35,000 more jobs would be created if the threshold at which small firms start to pay VAT was increased, claims the Federation of Small Businesses (FSB).
Up to 35,000 more jobs would be created if the threshold at which small firms start to pay VAT was increased, claims the Federation of Small Businesses (FSB).
An FSB commissioned report by the Centre for Economics and Business Research claims that increasing the VAT threshold to £90,000 from the current rate of £70,000 could save up to £162 million per year from the reduction in red tape, as well as saving just over £700 million in VAT payments.
Instead, the money could be used to create 35,000 jobs if based on the current average wage.
The report says while the amount the Treasury receives in VAT receipts would be affected, it would be more than offset by the potential £13 billion which would come from the increase in VAT to 20% due on January 4th next year.
The FSB says an increase in the threshold would help to provide much-needed cash-flow and allow them to invest back in the business through lower prices or taking on more staff.
John Walker, national chairman of the FSB, said: ”The smaller the business, the higher the cost of VAT compliance – this is why the FSB is calling for the Government to increase the threshold at which a business must register for VAT.
”If the Government is truly committed to a private sector led recovery, then it must implement a small business programme for growth to allow small firms to grow and invest. That would be a great start.
”The potential loss to Government in VAT receipts by increasing the threshold to £90,000 would be more than outweighed by the VAT rise due to come into force in January.”
The FSB claims small firms will be hit hard by the 2.5% rise in VAT because they will be unable to absorb the increase, and will be forced to pass the full cost on to customers, reduce stock levels or find cost savings elsewhere.
The FSB is the UK’s leading business organisation, with over 210,000 members.