The UK freelancer body IPSE says a higher VAT threshold would stimulate small business growth and encourage innovation.
IPSE has made the case for a higher threshold in its official submission to the Government's VAT call for evidence. It has warned against decreasing the current £85,000-threshold, saying that this would actively discourage the self-employed and many small businesses from growing beyond the threshold and provide EU businesses with an economic advantage.
Instead, IPSE is calling on the Government to raise the threshold in line with the Retail Price Index (RPI). The VAT threshold was pegged to the RPI from 1980 until it was frozen in 2017.
Andy Chamberlain, IPSE's deputy director of policy, said: "Lowering the VAT threshold would be disastrous for the UK economy … It would be an inhibiting move that would serve only to impede business growth and drag more people into red tape.
"The cashflow problems caused by such a move would mean people would face the stark choice of either raising their prices - causing them to lose customers - or absorbing the cost themselves, which would do significant damage to their businesses."
Chamberlain said the VAT threshold was "effectively cut" in the Autumn Budget in 2017 when the Government stopped indexing it in line with RPI.
"Increasing the VAT threshold in line with RPI would provide businesses with that much needed certainty as our imminent withdrawal from the EU approaches," he said. "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 to thrive, expand and further increase the overwhelming value they provide."