Small enterprises in the UK could employ an additional 35,000 people if the current VAT threshold is increased, according to one industry body.

Raising the VAT threshold from £70,000 to £90,000 will save firms £862 million in total, according to the Federation of Small Businesses (FSB), citing a study conducted by the Centre for Economics and Business Research.

It is estimated that £700 million in payments could be kept by firms, while an additional £162 million would be saved because of the reduction in red tape.

Commenting on the figures, FSB national chairman John Walker 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.”

He added that the forthcoming VAT hike would also cover lost revenue to the Treasury.

A higher threshold for business VAT could protect firms that are unable to absorb the January increase, the report also claimed.