The Association of Independent Professionals and the Self-Employed (IPSE) has warned the government against decreasing the current £85,000 VAT threshold, saying it could stifle small businesses.

It made an official submission to the government’s VAT call for evidence. In it they said that such action would actively discourage the self-employed and many small businesses from growing beyond the threshold. Not only that, it would also provide EU businesses with an economic advantage.

Inhibiting move

“Lowering the VAT threshold would be disastrous for the UK economy. Particularly during the uncertainty posed by Brexit,” said Andy Chamberlain, IPSE’s deputy director of policy. “It would be an inhibiting move that would serve only to impede business growth and drag more people into red-tape. The cash-flow problems caused by such a move would mean people would face a stark choice. Either raising their prices – causing them to lose customers – or absorbing the cost themselves, which would do significant damage to their businesses.”

Stability in Brexit uncertainty

Instead, IPSE is calling on the government to raise the threshold in line with the retail index price (RPI). This would follow a trend which saw it pegged to the RPI from 1980 until it was frozen in 2017.

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“Increasing the VAT threshold in line with RPI would provide businesses with that much needed certainty as our imminent withdrawal from the EU approaches,” said Chamberlain. “Presently, the self-employed contribute £271 billion to the UK economy every year – that’s enough to fund the NHS, twice. Increasing the VAT threshold would create a nurturing environment for our smallest business. They would thrive, expand and further increase the overwhelming value they provide.”

One thing to keep in mind though at present is the service HMRC provide. There were four million calls unanswered by HMRC in the last year. Any changes would have to be backed up by a vastly improved service.

Freelancers on the up

IPSE research has found that more people are swapping the security of a 9-to-5 job for the flexibility of freelance work. According to the organisation, almost 4.8 million people are now self-employed, of which 42% are freelancers. In particular, millennials and UK workers who are facing significant lifestyle changes. Motherhood and retirement are two reasons why they are looking for more flexible and empowering ways to work.

And it seems that there is a strong appetite for freelancers from some of the biggest global businesses. Peter Johnson, founder and CEO of Lystable – a platform designed to make it easier for businesses to manage their freelancers – told Forbes that top companies like Google and ASOS are sourcing half of their UK-based workforce from the freelance population.

“For leading companies, like Google and ASOS, a full 50% of their UK-based workforce is made up of freelancers,”. He added that amidst the Brexit uncertainty “freelancers will come to play an even more pivotal role in the British economy than they already do.”

One thing is certain though. Any change to the threshold will be cause small businesses another headache...

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