By Julian Goldsmith, 25 November 2008 17:22
NEWS
The Chancellor of the Exchequer Alistair Darling's decision to cut Value Added Tax (VAT) from 17.5 per cent to 15 per cent is likely to be an IT headache for retailers according to industry commentators.
silicon.com Retail & Leisure
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Although a relatively straightforward task, analyst Butler Group and finance systems supplier Coda say the scale of change required, combined with the little notice given by the chancellor ahead of the sector's busiest time of the year, mean retailers will be entering a minefield in terms of risk to the business.
Butler Group senior research analyst Angela Eager highlighted that not only will retailers have to address pricing changes on the shelf and at the point of sale, but they will also need to test these changes throughout the entire inventory system, their supplier networks and ERP platforms.
"As a result, some retailers are expected to struggle and may not be able to think about applying the reduction until next season's goods arrive," she said in a research note.
Pete Crowe, IT director of retailer Fat Face, is unconvinced of the value brought by the change.
"This is causing a lot of analysis, management time and is generating a lot of technical effort in doing changes to a variety of applications. All this for little or no customer benefit," he told silicon.com.
A spokesman for Coda added retailers generally lock down development activity on their IT infrastructures over Christmas to avoid risk of systems failures.
He added that many retailers won't be able to change all of the prices on the shelves in time to meet the Chancellor's deadline of seven days and instead the best they can do is to post up generic price converters around stores and register the price change at the till.
Comments
There are 9 comments. Join the discussion
1. Derek Cullen
What everyone seems to be missing is that will actually push up the price of goods in the shops. VAT is reclaimable by business, fuel duty is not. This means that business will be bearing extra costs (2p per litre) from 1st December, which will inevitably lead to more expensive food, clothes, etc.
2. Ollie Clark
It seems amazing to me that huge retailers with thousands of lines can easily have a short period of reductions at a whim (M+S, Debenhams etc. etc.) but then complain when they have to do a one off reduction of 2.5%.
Why don't their systems have the ability to deal with different rates of VAT? Yes, they'd still have to go around changing the shelf edge labels but someone's going to be filling the shelves anyway. Perhaps it's time for them to consider electronic shelves with LCD price labels.
It sounds more like an excuse to not pass on the change in my humble opinion.
3. Guy Reynolds
Retailers don't need shelf pricing of their products only the VAT setting and the untaxed price of the items, because they are going to see increases in the cost of buying in the goods.
In the normal smoke and mirrors fashion, the Chancellor reduced VAT by 2.5% and increased fuel duty by 2p claiming this had a neutral effect. This is missleading to say the least, hauliers and transport companies who are VAT registered can offset the VAT on fuel, however they cannot offset the duty, as a result they will see an immediate 2p increase in the price of fuel which will be passed on through the supply chain causing a rise in the finished price of goods thus negating the 2.5% cut in VAT.
As a result consumers see no change in the price of goods in the shops and get a massive tax bill in a couple of years time.
4. Richard
A ordinary woman interviewed in the street had a much more sensible idea;
Far more sensible than the "whiz kids" in the Treasury who have never held a "proper" job nor worked in the wealth producing, private sector:
The government should simply have cut the VAT on domestic fuel:
That way, we'd all have seen the benefit - especially during the cold winter months - and would have had more money to spend;
The total amount would be predictable - the government knows how much fuel is consumed;
And, this change would have been far simpler to implement, because it would have affected far fewer "merchants."
If such a simple change is prevented by EU rules, surely these could be suspended during "the worst crisis in living memory"?
If such EU rules cannot be suspended, that tells us all we need to know about the EU!
5. Dave .
It's not the big retailers which have the biggest problem - it's the small retailers like me. My stock is all price marked because my shelf-edges aren't constructed to take labels. I would have to reprice some 10,000 individual products. It would take months to do all of them, or I'd have to hire extra bodies to do the job. Sorry, no way. I've modified the till to produce receipts at 15% and that's as far as I'm going.
6. Michael Sharpe
the 2.5% reduction VAT is not 2.5% off the selling price but 2.5% off the rate of VAT ie. VAT is now 15%
VAT is applied as followed
£85.11 + 17.5% VAT = £100
£85.11 + 15% VAT = £97.87
The real reduction on a product that currently sells at £100 is just 2.13%
7. Karen Challinor
wooot! I can now buy the same goods for £97.87 that would have cost me £100 at the old rate of tax, a saving of £2.13
I must rush to the shops and buy things with this new found wealth
oh wait
I don't have £100 to spend in the first f*cking place thanks to the recession
and I'm going to be in debt for the rest of my life along with everyone else in the country to pay for this stroke of genius
yet another well thought out plan from our government
8. Karen Challinor
and thats assuming that the shops will pass on the VAT saving to the consumer and not pocket it for fat cat bonuses and shareholder dividends, mentioning no names
thank you very much Mr Darling for demonstrating the same level of competence in your post as your predecessor did
9. Doug Macdonell
Not 2.5% as everyone seems to think.
2.50/117.50*100=2.13% - this is the actual discount. Soom retailers are giving 2.5% discount - How wrong.