Tories, retail ISVs decry Darling's VAT cut George Osborne has described Alistair Darling's pre-budget report as the largest ever borrowing by a British government and leaving a tax bombshell timed to explode as the economy recovers. He proclaimed that "prudence is dead", and said PM Gordon Brown's claims to have abolished boom and bust were ludicrous. He said the …
Well, if the Chancellor was worried about inflation falling too low next year, this VAT drop will certainly avoid it.
I suspect most retailers will see it as an opportunity to put prices up without people noticing.
How about dropping my income tax by 2.5% and give me the money directly, before anyone else can steal it (that is, before the Treasury does).
Paris, 'cos she's synonymous with 'inflationary pressures' too.
Retailers have two options with a lower VAT rate:
1. Pass it on to the customer. Customer sees cheaper prices and buys more. Net gain.
2. Don't pass it on to the customer. Customer sees the same prices and buys the same amount. Retailer makes more per unit. Net gain.
Why would retailers not support a VAT cut?
Businesses are complaining that they won't be able to pass on the price cut to the customer because their systems can't cope? Do they honestly have hard-code values for VAT? I'm sorry but this sounds like a feeble smokescreen to justify naked profiteering. I'll bet the smae businesses would have no problem raising there prices if the VAT rate went up!
And as for the Tories complaining about Labour reversing the most pernicious stealth tax of all time...
Giving retailers - particularly those online - a week to do this, is nothing short of lunacy. It'll force most retailers to just swallow the cut ('cos customers will certainly expect it) and try to sort out the mess afterwards.
A stupendously naive and stupid decision by Darling and Gordon, exacerbated by the timeframe in which they've suggested it can be implemented.
Contractor rates will be sky-high, with all the work that'll be needed to update, test (and then hunt down all the hard-coded 17.5's in the codebase of) the hundreds of online shopping sites which have been developed in the years since VAT last changed. At least some of those laid off in other sectors will be able to find a few weeks' work.
Where is the 'evil gordon' icon? I've picked Paris, 'cos even she knows there'll be hard-coded vat rates strewn through program code and presentation layers across the IT spectrum.
What idiots have hard coded the rate of VAT into their systems?
Changing the rate of vat to 15% should be a 1 minute job for some minor admin staff in the accounts dept on Monday morning.
Whats actually going to happen here is that retailers will sell at the same price, effectively putting their prices UP to keep the new 115% price the same as the old 117.5% price.
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OK, it's likely true that nobody wants to chance an IT failure at this time of year, and there are complications on pricing--they do like to have the number 9 at the end of a price.
But the basic principle of VAT is that you subtract the VAT you pay in "inputs" (what your business buys) from the VAT you charge your customers on "outputs" (what your business sells). and pay the difference to the government.
And if the VAT rates for what you buy and sell are different, it all works out. That already happens--books are zero-rated, but a bookshop has to buy electricity, and pay VAT on that. Some businesses selling zero-rated good pay negative VAT, which means that the government pays them a refund.
So a shoeshop buying shoes at 17.5% VAT isn't going to lose money by selling them at 15% VAT.
so once again, poorly written bug ridden software is the name of the game.
As usual the attitude is "there will always be bugs" mostly deliberately introduced to earn more in the case of a tax % change. Sounds like CODA and its ilk are seeing £ signs in maintenance fees that shouldnt be necessary. System should allow the VAT percentage to be easily changed, but likely its hard coded to the app
Perhaps we should do as per North america and tack tax on at the till, then retailers might be more aware of what they are buying and purchase a system which can easily be updated rather than requiring a likely total re-write due to bad design.
No this isnt an unsubstantiated joke, I work in retail (joy of oversubscribed IT and recession) and over the course of 2 or 3 employers over the years I have seen some of THE most shoddily written systems, some of which simpler to do than the average college / University project done to a standard which would have resulted in a fail, course resit and a warning to improve quality of work produced or to leave the course.
But since its "the real world"; someone likely will come out of the wood work and claim "its not as simple as that" "we couldnt have foreseen they would change VAT" "we have to make money somehow" <- yeah by ripping off your customers and providing shoddy service and products which in any other industry category would have trading standards interested or the competition commission.
What happened to pride in one's work? now its all "lowest denominator" justified by "that'll do", "but that takes effort and I'm so busy! (yet have time to sit commenting on websites for the best part of the day)" "insert other stereotypical whinges"
Frankly IT is a bad joke, Quality control on a lot of commercial software is non existent, for a starting example of the stupidity Ive seen recently - using Access as a backend to an EPOS system is the DUMBEST thing I have ever seen, coupled with a VB frontend.....the company that built that in a lunch hour (if it took them longer than then they are worse they appear) should be dealt with for producing crap buggy software thats slower than an 8086 running VISTA and insecure, for hecks sake it deals with credit card numbers etc. way to go *cough* VME Retail *cough* Worst part is that the databases only get compacted / error corrected when the system totally collapses every few months (and yes I have sat and watched them remote desktop and run access's database compaction tools) just prior to that the system regularly will sit for upwards of 3 minutes trying to haul information out of the database to calculate money off offers etc.
Ugh today has not been a good day </RANT>
They have gone mad; spending like it is no tomorrow, stealing from Paul to pay Peter, it is just sheer lunacy. And it is all our money and wealth these nutters are screwing around with.
Most of them look like they are doped to the eyeballs anyhow at the moment, they are just not thinking straight.
Their tax hikes, will cause people of effect to leave the country, it is becoming too expensive to do business in the UK.
The borrowing for the public sector will just go nowhere. They are seriously and systematically destroying the future of the UK, it is just corruption and chaos.
They need to removed and shown the inside of a nice padded cell, for the protection of themselves and others. They are just not capable of looking after themselves let alone the UK.
first he says it a system/process problem, then he says its not a problem.... erm.... yeh.
Most shops don't include VAT on the price tag so they only need to work the VAT backwards based on the current price until such time as they update the prices and change the tags (which to be honest is not that big a job). Surely they store VAT separately due to changing rates, or did their programmers not foresee that?
Mines the one with "graduate programmers stole my job" on the back.
Mr Darling should be sentenced to a course of Santayana readings starting with "Those who cannot learn from history are doomed to repeat it."
The biggest lesson of the Great Depression and the successful rescue strategies employed at that time was "Recovery through investment into infrastructure". Infrastructure projects create jobs directly as well as indirectly in the subcontractors. They provide people with money in their pockets and serve recovery at 80%+ efficiency relative to money spend on them. They also provide long term return on investment and can be privatised at a later date so the money invested into them is redeemable.
American road infrastructure, hydroelectrics, etc are all examples of how this was done during those years. USA used the boost from them for years to come.
So what do we have instead of new roads, the Severn barrage, new telecoms infrastructure, etc? Some pocket pennies for the white trash from the Labour voting council estates to spend this Christmas. This is not going to provide any recovery any time soon. All it will provide will be debt, debt and debt which the working part of the population will have to repay over the next 30 years.
I can't wait to hear the response from Europe.
With the Pound costing sod-all in Euro anyway, this VAT cut means you'd be sodding mad over here to buy anything pricey from anywhere other than a UK-based e-Shop. Britain may well become an export driven economy....
Expect a euroturdspurt soon.
While here in Ireland the best that the “Life of Brians”, the Irish PM, Brian Clown and his faithful sidekick Brian Lead-a-hand, can come up with is to increase VAT, Hospital Charges and Petrol Tax, that’s really going to help get the economy going….. to Newry in Northen Ireland, to avail of the lower tax and cheaper goods.
Paris because She knows how to spend.
Do commercial systems really hard code the vat rate ? I wrote my own as none of the commercial/FOSS ones quite suited. Here's my cron job for next sunday at midnight:
update products set vat=1.15 where vat=1.175
covers all the zero rated stuff too. Magic. Perhaps I should book 4 hours just to make it sound complicated...
If The Independent can't do the conversions, what chance has a small shopkeeper?
/www.independent.co.uk/news/uk/home-news/vat-cut-brings-a-christmas-sale-fo-all-ndash-but-will-it-work-1032199.html or http://tinyurl.com/5pubpr
eg
Ford Mondeo Current price: £15,995; new price: £15,175.26 Saving: £819.74
John Lewis men's jacket Current price: £110; new price: £104.36 Saving: £5.64
Their "savings" are about 40% more that the actual ones.
"Their tax hikes, will cause people of effect to leave the country, it is becoming too expensive to do business in the UK."
And go where? America for its booming economy or India for its high remuneration?
I love those Daily Mail surveys that say "90% of Britains are ready to emigrate!!!"; they never mention that 90% of Britains probably wouldn't qualify for immigration into their prefferred Land of Milk and Honey (TM).
For big and small retailers the biggest issue is re-pricing on products and shelves. In a supermarket there may be as many as 50,000 products that need re-pricing both on the shelf and the individual items. Doing that at Christmas when every supermarket is already over-worked is madness.
In addition, the 2.5% cut is not particularly noticeable on an item-by-tem basis whereas giving every customer a 2.5% discount at the till gives them a clear picture of how much the government has knocked off their shopping.
But the retailers are being told to change their prices instead of giving a discount.
Sure. Just change the tax rate and everything will work fine...
Except that some prices have to stay constant (parking fee £1, machine can't take 98.5p ...). Some prices are going to be reduced. What about items purchased, invoiced but not dispatched or paid for yet ? Which rate are they paid at - and will it be the same for every customer ?
Invoices already issued probably have to be voided, a credit note sent and then they must be re-invoiced at a different rate....
If it were just a case of a few "hard-coded" 17.5s I'd be laughing...
Paris 'cos she'd probably only think in terms of simple web-shops rather than 1,000s of very different customers and situations...
"Changing the rate of vat to 15% should be a 1 minute job for some minor admin staff in the accounts dept on Monday morning".
Hahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahaha.
And changing the date field from 2 to 4 digits should be a 1 minute job too... Because of course it was designed to be flexible.
Right.
Well, it's good to see the usual amount of ill-informed comment, badly-thought-out spouting and general "Oh, it's easy, I can do that in ten minutes" bollocks that have come to be the standard in comments on El Reg.
OK, for all you clever gobshites out there, here's some stuff to ponder...
On the plus side, most reasonable systems should have the VAT rate (or, in fact, rates) set in a single place and then apply these to ex-VAT prices at the point of generating invoices/receipts. So that part of the change should, indeed, be fairly straight-forward in most cases.
However, if you're a retailer, you have stuff on shelves and racks and hooks and wherever. Most of that stuff has price tickets on it. Even if you have some whizzy EPOS system that just scans bar codes and does the maths, you still usually have the price on there somewhere for the punters. So... if you're going to pass on the VAT cut, you now need to calculate all your new VAT-inclusive prices and re-ticket all of your stock. In a week. And while continuing to trade normally. (Ironically, this might actually prove to be easier for the large retailers than for many small businesses - at least they've got the bodies and may have automated systems in place to help.)
Next up, suppose you're a mail order business with a real physical catalogue as well as an online one (or instead of an online one). You printed your last catalogue run of umpty-thousand copies in September (economies of scale and all that) and the next one isn't scheduled until March or something. And all your existing catalogues have your old VAT-inclusive prices in them. And, perhaps, there's a mixture of VAT rates in the products you sell as well (OK, only likely to be a mix of full VAT with zero VAT, but...) So you can't just say "Oh, whenever anyone places an order, we'll just tell 'em to cut 2.5% off the payment that they send us (well, actually something like 2.127660% given the way that VAT works)". So there's a bit of a sod. Unless you want your customers to send in their order and then wait for you to invoice them the correct amount before actually carrying out the transaction (maybe feasible on telephone or online sales, but not so easy via the post - and it still doesn't fix the minor hassle of all your customers now having catalogues with incorrect prices in 'em).
Next up, suppose you're a manufacturer or distributor of products and you've set your UK RRP for a given product at some convenient level such as £55.99. OK, so it's up to your end customers what they actually charge for the product in their own shops, but do you contact all of them and say "Oh, by the way, the RRP is now £54.80". Or, more to the point, do you go to all the hassle of producing a complete new RRP list and send a copy out to all of your trade customers. In a week. While continuing to trade normally. (Probably not - you just tell your retailers to sort it out themselves.)
And, while on the subject of trade sales, what about trade terms? On the one hand, at least it's easy from the pricing/invoicing point of view - customer orders two thousand widgets, knowing the ex-VAT price and that any additional works cost, delivery, VAT, etc. will be added. System calculates total ex-VAT price, adds any additionals and VAT and the customer gets invoiced. Easiest transaction of the lot. But, on the other hand, the customer is on thirty day terms (say) and they placed an order last week. The order was processed and shipped and the invoice raised (with 17.5% VAT) last Thursday. It doesn't fall due for over three weeks, by which time the VAT rate is 15%. Do you just process the invoice as stands or do you re-issue it at the new VAT rate? Or do you handle them on a case-by-case basis? Are you on standard VAT accounting or cash accounting (or something else altogether)? I haven't checked everywhere yet, but haven't seen any pronouncements or guidelines from the Government or HMRC as to what they are expecting people to do about this kind of thing. Neither have most of the accountants I've spoken to.
And, through all of this and assuming that you pass the VAT reduction on to your customer, the punters actually end up saving a pretty piddling amount of money! Buying a DVD for, say, £11.75? Great, you're gonna save 25p. Buying a new TV for 500 quid? You're gonna save just over a tenner. Come on guys! You can probably save far more money just by haggling with the salesman or the shopkeeper! Or waiting for something to go on sale somewhere (which will usually get you at least 5-10% off the full ticket price, if not more).
Funnily enough, when the idea of a VAT cut was first mooted, I thought "Hmmm... Not such a bad idea, relatively easy to implement, cuts prices a bit, might tempt people to spend a bit more money, etc." However, the more I've thought about it and looked at what's involved (and what good it's likely to do), the more I think it's a bloody stupid idea. Unless you're just going to do away with VAT altogether for a while.
Having said that, one of the other comments does make the very good point that it would actually be a whole lot easier if our retail pricing was done in the same way as the US - ex-VAT price labels, with tax added at the till. If nothing else, that would solve most of the practical problems of tax-rate changes, as well as making it clear to Joe Public just how much of their £9.99 total is actually earmarked for the quarterly insanity that is the VAT return.
Online pricing (or pricing/invoicing systems in general) are the easy bit. Can I see your (or your accountant's) cron job that's going to get your next VAT return right if your VAT quarter includes a rate change? Don't forget, you'll need to make sure that you hand over or claim back 17.5% on anything charged at 17.5% and only hand over or claim back 15% on anything charged at 15%.
OK, so the process isn't actually all that difficult if you want to work it out manually (so long as you only have a fairly small number of transactions, or have a lot of spare time), but you'll certainly need to check whether your accounting/VAT software will process rate changes correctly during a quarter or whether it will just apply the current rate to everything at the point when you run the VAT return itself . If it simply does the latter, your VAT return will be incorrect. And that's bad, mmm'kay?
I still think piddling about with minor changes to the VAT rate is a bloody stupid idea and is likely to be about as much use as changing deck-chairs on the Titanic in the current circumstances. It's going to cause some ill-timed hassle for those businesses and people who have to implement the relevant changes, but will do naff-all good in practical terms.
As my small business has already had to change the VAT rate once (we moved countries), it's indeed no big deal for us this time, even with our cobbled-together PHP/MySQL accounting system - the canonical $VAT_rate=0.15 will do nicely (I even have a web interface to change it...). But even so I can clearly see that if we'd had a nice big bunch of Christmas catalogues and POS advertising printed up, or a shop full of clothes with price tags to be reduced by 1/47th, it would be a different matter. Far too short a lead time even if it was not just a pointless exercise which manages to combine minimal public impact with a substantial loss of revenue.
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