Following the change in VAT rates that will come into effect next Monday, I looked around to see how business opinions were being reflected, some press coverage emerged and the IoD issued a press release. Whilst I generally agree with the sentiments expressed in the press release from Mr Templeman, it has failed to make issue of the significant time costs and financial cost, particularly to small businesses, of this VAT rate change. The government estimates the administrative cost to be around £300 million.
Several large companies have already commented on the logistics nightmare of this change, but for small businesses the implications are often massive. According to the standard letter issued on 24th by HMRC to VAT registered companies, “most software packages should have the in-built ability to deal with the changes in the rate”, however in my experience over the last few days, this vastly underestimates the real difficulties, particularly with businesses that may have little in house bookkeeping resource. Accounting software companies and EPOS providers have been inundated with support requests on how to make code changes, resulting in one major provider closing down completely to “regroup” on Monday of this week. Moreover, small businesses with less standardised or bespoke systems have been suffering terribly, with at least two of our clients having to have major rewrites to databases to cope with these changes at exceptionally short notice.
Small companies involved with e-commerce are in a number of cases having costly changes made to websites, whether or not they wish to pass on the rate changes to customers. Those involved with affiliate schemes or that have overseas sales with automatic “tax free” VAT crediting are experiencing significant expense and problems in rapidly modifying websites.
Businesses, including mine, that receive regular contract payments by Standing Order have to choose between reissuing mandates to all clients and suffering the cashflow consequences of errors and delays in processing these, or having to deal with manual refunds of overpayments for the next thirteen months.
Whilst many small businesses are choosing not to re-ticket merchandise or reprint literature and catalogues, a number have no choice, such as those operating concessions in larger retail outlets, again this carries significant cost.
A further cost to business has arisen with the fact that VAT reductions on vehicle fuel have been replaced with duty, which in fact means an increase in cost to VAT registered businesses, since while VAT is reclaimable, duties are not.
With it being generally accepted that the VAT rate will have little effect on consumer spending, it is my opinion that businesses selling to consumers will have significant cost and little benefit from the rate change, whilst those selling “business to business” will have only costs. At least businesses now have thirteen months notice of the next change.
