VAT cut makes more work for finance

Finance departments risk having to mop up accounting errors over the next few weeks after they were given just four working days to modify their financial software to accommodate the cut in VAT in last month’s pre-Budget report.

Alistair Darlings’ pre-Budget report reduced VAT to 15% from 17.5% with IT experts estimating it could cost each company hundreds of thousands of pounds to implement the changes.

Hidden costs could be added to that figure as accountants scramble to meet the deadline set with less than a week’s notice.

The extra burden of implementing the changes in such a short space of time could lead to errors and panic from the finance function in a bid to rush through the changes, experts have warned.

Kevin McCallum, commercial director at software supplier Pegasus, said: ‘The problem is the hidden costs to hard pressed accounting and finance staff. It is the time that needs to be taken to fix these changes which could lead to errors.’

Software companies have said they expect to be inundated with calls from customers who were unsure as to how to make changes to their accounting systems.

Although VAT is a variable tax, and most accounting software has been written to accommodate changes, the majority of customers have never had to use this facility and may panic at the year-end deadline for accounts.

Dennis Keeling, chief executive of Business Software Intelligence and a former chief executive of the
Business Application Software Developers’ Association, said: ‘It isn’t straight forward changing VAT.

Accountants’ phones will be ringing off the hook with people trying to find out how to do it.’

‘Software that has been built bespoke may not have the ability to change quickly which could add further problems’ he added.

Ewen Ferguson, associate director at Protiviti, a consultancy, added that many IT systems have the 17.5% VAT rate ‘hard-coded’ into them within calculations. ‘To check and amend every system and spreadsheet could be a massive task and may cause an unforeseen impact to year-to-date data.’

Retailers will rely on their software to quickly introduce price changes to their bar coding systems.