VAT figure is a 'gross underestimate'

Experts estimate the cost for UK businesses to reinstate the 2.5% drop in VAT
will run to more than £850m, a figure that dwarfs the Treasury impact assessment
cost of £125m.

Research by ICAS’s specialist VAT committee looked at their client lists to
work out the costs to a business of implementing the cut in VAT.

That resulted in an estimated cost of £500 per registered company ­ which
produced a calculation of £850m alone for implementation of the 2.5% reduction.
Experts believe returning to the original rate of 17.5% would cost even more.

Derek Allen, director of taxation at ICAS, said it would cost ‘significantly
more to reinstate it.’ He said he raised the concern that the impact assessment
was out of line with the institute’s estimates with HM Revenue & Customs at
a meeting in April .

‘The government has placed a lower figure on the cost to reinstate the rate
due to businesses being familiar with the process. This cost has to be higher
due to the need to reprice goods and services,’ he said.

Sebastian Hordern, senior policy adviser at the
CBI,
also said the Treasury’s figures were too conservative, labelling them ‘gross
underestimates’.

He said that while the figures outlined in the report are too low, the
Treasury is currently in talks with research group ORC to improve their impact
assessment estimates, ‘but its clear the costs are going to be way in excess of
what’s in the report’.

‘I’m not really surprised by the underestimate…HM Treasury’s impact
assessment’s have a history of being unrealistic,’ he said.

According to Paddy Behan, VAT partner at
Vantis, the
Treasury is ‘yet to face up to the real costs’ associated with the changes,
especially those to retailers.

‘The figures strike me as being implausibly low,’ he said.

Behan pointed to business models which incorporated both part VAT- exempt and
taxable items as being particularly affected by the changes. ‘It’s a pig’s
breakfast. It’s very onerous to change the bar codes and so many retailers are
in this position,’ he said.

A spokesman said the Treasury undertook detailed research and ‘we stand by
our impact assessment estimate’. He added that the temporary reduction will
provide a fiscal boost of £12.4bn for families and businesses, and will support
the economy in the short to medium term through increased spending power and
economic activity.