Shoppers face confusion over VAT rate

News Article - 11 January 2010
Category: Business

Following the January 1st return to a 17.5% base VAT rate, shoppers are facing confusion on the high street as retailers take different routes to repackage and absorb the changes to keep goods attractive to consumers. Companies are keen to minimise disruption to the high volume of sales experienced throughout the Christmas and New Year periods.

Rather than increase prices in the January sales, many retailers have said they will absorb the 2.5% increase themselves, or delay passing the extra costs on until the economic downturn lessens. The Centre for Economics and Business Research (CEBR) recently warned retailers may face reduced profits in the first few months of 2010 as sales fall due to inflation and the rising VAT costs. Accordingly, Tesco, Sainsbury's and ASDA have pledged to delay the increase. However some retailers - such as Marks and Spencer - have already raised their prices.

Following the return to 17.5%, businesses in all industries face tough decisions on how to balance the need to keep buyers interested and also maintain profit margins. This problem can be compounded by the logistical and administrative costs of absorbing the changes e.g. updating and testing computer systems. Previous VAT changes have impacted on businesses of all sizes. Reducing the rate to 15% was estimated to have cost UK businesses £470m, and research shows that most businesses underestimate the costs and down time associated with VAT reforms. 12% were still addressing the issue in the weeks following the reduction to 15%.

Over the last few months, Access business software has supported UK organisations transitioning to the 17.5% VAT rate. Backed by years of experience and business agility, the Access Dimensions package is updated regularly and is fully compliant with all the latest legislation. This ensures downtime is minimised and associated costs are absorbed as quickly as possible.

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