Small firms need VAT money for jobs

Posted on 8 Dec 2010 by The Manufacturer

Up to 35,000 jobs could be created if small businesses could earn more before paying VAT, a new report claims today.

Research carried out by the Centre for Economics and Business Research on behalf of the Federation of Small Businesses (FSB) suggests that if the threshold for earnings before VAT is liable was increased from £70,000 to £90,000, the £700m yearly small businesses would save directly, along with £162m per annum in administrative costs, could be channelled into wages for new staff. The money, FSB says, would easily be offset by the some £13bn extra revenue per year that the imminent rise in VAT from 17.5 per cent to 20 per cent is expected to bring the Treasury.

The FSB wants this measure implemented as part of a wider Small Business Programme for Growth aimed at providing companies more cash flow to reinvest in their businesses.

It says small firms will not be able to soak up the VAT rise, meaning it will either have to be passed on to customers or cost saving programmes will beneccessary which could cost jobs.

FSB research finds that 10.4 per cent of firms expect to decrease employment over the final quarter of the year.

“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 – and (increasing the VAT threshold) would be a great start,” said John Walker, national chairman of the FSB.

The VAT rise will take effect on January 4.