VAT ‘idiocy’ will cost businesses at least £300 million

The administrative burden of repricing millions of goods, changing software and accounting systems will total £125 million when VAT returns to 17.5 per cent on January 1.

This will add to the £175 million incurred last year when the rate was reduced by 15 per cent, according to calculations by the Treasury.

However, experts said that this estimate “considerably” underestimated the cost to businesses – by at least £50 million – because it failed to take into account the fact the change was to take place not only on a Bank Holiday, but also the busiest time of the year for retailers, hotels and restaurants.

The figures came as further senior business figures came out in support of The Daily Telegraph’s campaign to postpone the increase in the rate of VAT from its temporary rate of 15 per cent to 17.5 per cent.
Alistair Darling, the Chancellor, has been criticised for refusing to change the date.

Michael Ward, the managing director of Harrods, said only a “congenital idiot” would put up VAT on New Year’s day just as retailers were launching their January sales..

Terry Duddy, chief executive of Home Retail Group, one of the country’s largest retailers which owns Argos and Homebase said: “The proposed timing of the switchover is not helpful to anyone in retail. We hope that the Government will see sense and move away from New Year’s Eve.”

David Frost, Director General of the British Chambers of Commerce, said: “It is a terrible oversight on the government’s part to pick January 1 as the day to do it.

“Retailers have enough difficulty getting staff in over New Year and the added pressure of changing all your product prices is going to be significant. Pushing back the date is the sensible solution.”

He added that, in his view, the Treasury had completely failed to take into account the cost of hiring staff on overtime to work over the New Year holiday.

The Treasury’s impact assessment into the VAT change, published last year, suggested it would cost less money for Britain’s two million businesses to put the rate up than it had cost them to put the rate down.

“The cost of going back to 17.5 per cent is less on the expectation that a return to the familiar rate will be less time-consuming for businesses,” it said.

Experts said this made no sense

Jim Wilkinson, a VAT partner, at accountancy firm PriceWaterhouseCoopers, said: “I don’t see any reason why it should cost less. It will cost exactly the same to implement the changes. The same changes to systems and pricings need to be done. If anything it will cost more because the timing will mean additional wage costs of hiring people over New Year.” (Via Telegraph)

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