Taxation logo taxation mission text

Since 1927 the leading authority on tax law, practice and administration

Small firms call for higher VAT threshold

£200,000 rise could create 35,000 jobs, claims FSB

The UK job market could benefit from up to 35,000 additional positions if the point at which small firms begin to pay VAT was increased by £20,000, according to the Federation of Small Businesses (FSB).

Raising the threshold to £90,000, from the current £70,000, could save up to £162 million per year through a reduction in red tape associated with VAT compliance, as well as saving just over £700 million in payments, an FSB-commissioned report by the Centre for Economics and Business Research (CEBR) shows.

The savings could be used to create up to 35,000 jobs on an average wage, said the federation, claiming that the loss to the Treasury in VAT receipts would be ‘more than offset by the potential £13 billion that will come from the increase in VAT to 20%’.

Small firms will be hit hard by the rise of 2.5 percentage points in January because they will not be able to absorb the increase and will have to pass the full cost on to customers, reduce stock levels, or find cost savings elsewhere – possibly by axing jobs – said the FSB.

The organisation’s national chairman, John Walker, stressed the need for national programme for growth for small firms as 10.4% of firms expect to reduce their staffing levels over the final quarter of the year, according to the CEBR report.

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,’ said Mr Walker.

‘If the Government is truly committed to a private sector-led recovery then it must implement a small business programme for growth, to allow firms to grow and invest.’

back to top icon