VAT cut causes a headache for companies

The cut in value added tax is likely to create a series of headaches for companies, ranging from the impact on year-end accounts and changing prices and invoices to updating IT systems, experts have warned.

The VAT cut from 17.5% to 15% announced in the pre-Budget report earlier this week was one of the centrepieces in Chancellor Alistair Darling’s statement in a £12.4bn boost for the British economy aimed at reviving consumer spending.

But experts have warned that the tax cut ­ effective for 13 months from 1 December ­ is likely to cause difficulties for many businesses, particularly retailers.

‘While the VAT reduction will be welcomed by many in the business community, for some organisations it will be a lot more difficult to implement than people initially think,’ said Ewen Ferguson, associate director at Protiviti, a consultancy.

He 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,’ Ferguson said.

Mark Welby, a VAT partner at BDO Stoy Hayward, said: ‘[The issue for business] is how quickly their software can introduce price changes to bar coding systems.’

For more, go to www.hm-treasury.gov.uk