The 2.5% cut in VAT announced in Monday’s Pre-Budget Report has led to a huge level of calls for support from retailers and other consumer businesses.  Deloitte, the business advisory firm, set up a VAT/IT Hotline at 9am this morning and has received an average of 30 calls per hour from clients seeking help.  The vast majority of these calls are coming from retailers and other consumer facing businesses.

Conrad Young, Head of tax management consulting at Deloitte, said: “The main driver for the level of calls appears to be the fact that a lot of technical guidance has been released, and with such a tight timeframe, many callers require quick answers to deal with the practical issues in implementing the changes.”

Tarlok Teji, UK Head of Retail at Deloitte, said: “The majority of clients we have spoken to about this cut say it is not particularly helpful.  A 2.5% cut in VAT is going to generate very few additional sales, especially when you consider the discounting that is already underway on the high street.  Consumers are savvy enough to recognise that on many low and medium cost items, the difference is pennies or a few pounds.  Even on big ticket items it is questionable whether it will make a big enough impact.”

“It is probable that the increased costs in terms of staff time, updating IT systems, arranging in-store promotions and changing pricing tickets will be greater than any benefit seen from increased sales.”

Consumer businesses have a number of things to consider before deciding if or how to implement this change:

• How do they manage customer expectations?  Consumers will be expecting to see the change in price but may not recognise it as prices fall as a result of other discounting;
• Food is often zero-rated, so food retailers face a particular challenge of communicating this to consumers who may still expect to see a price cut;
• How do they deal with price points?  Some businesses have a ‘round pound’ policy which makes a precise 2.5% cut difficult;
• Even if some consumer facing businesses decide not to pass on the cut to consumers, they will still need to deal with the new rate for invoices, compliance processes and so on.

Darren Stephens, Indirect Tax Partner at Deloitte, said: “These considerations are just the tip of the iceberg.  Once retailers have dealt with consumer facing issues around pricing they will need to deal with additional administration when completing VAT returns at the end of month.  They will also need to review supplier arrangements and think about how to deal with goods purchased at 17.5% and returned at 15%.  Not least, many retailers put a block on all changes to till systems in the run up to Christmas to avoid mistakes and confusion – but special circumstances may require special measures.”

Ends

Deloitte’s VAT/IT Hotline will remain open until 6pm on Friday, unless the volume of calls received suggests that it should remain open for longer.  Businesses seeking guidance can call 020 7303 0701.

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP, which is among the country's leading professional services firms.  Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu ("DTT"), a Swiss Verein whose member firms are separate and independent legal entities.  Neither DTT nor any of its member firms has any liability for each other's acts or omissions.  Services are provided by member firms or their subsidiaries and not by DTT.  Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.