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Retailers Prepare for VAT Increase

After much speculation, the emergency budget delivered this week by George Osborne was a relief for retailers. Whilst this increase in VAT from 17.5% to 20% will now occur, it will thankfully not to be implemented until the New Year. The fact that the new government has given retailers maximum time to prepare for the change and avoiding the pre-Christmas period when shops are likely to be most busy is very welcomed. Last month Sainsbury’s supermarket chief executive Justin King expressed his concern about the timing of such a rise in VAT warning the government to avoid key trading periods such as the run-up to and in the aftermath of Christmas. The timing of the previous Government’s changes in VAT (a reduction to 15% for 13 months from December 2008) caught retailers on the hop and caused them considerable difficulties in quickly amending their prices for what is now regarded as a very ineffective economic stimulus measure. A subsequent study by Price Waterhouse Coopers revealed that 88% of people felt that the VAT reduction had not influenced them to increase their spending. Regardless of whether the increase will benefit the treasury, retailers now have to be ready for the changes and will no doubt be focusing on their systems’ effectiveness in updating till data and coping with re-labelling.

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