VAT rate cut will cause system problems, warns analyst

The government's 2.5% cut in VAT could put a strain on the business systems of firms, says analyst Butler Group.

The government's 2.5% cut in VAT could put a strain on the business systems of firms, says analyst Butler Group.

"Changing the VAT rate from 17.5% to 15% has widespread implications inside the organisation, across the supply chain, and for the customers," said Butler analyst Angela Eager.

"The decision will challenge business management systems, particularly financial management and enterprise resource planning (ERP) applications."

As the change comes into force from next Monday (1 December), firms have little time to change systems.

It is not just a matter of repricing goods on the shelves and changing point of sale systems, said Eager, it also means making, checking and testing changes throughout the entire inventory, the up and downstream supplier network, and in back-office systems and related processes such as financial and ERP systems.

Many firms have also already bought goods and supplies to be sold on at a 17.5% VAT rate. Some retailers are expected to struggle and may not be able to think about applying the reduction until next season's goods arrive, said Eager.

Firms usually have a greater notice period about tax changes, and the VAT drop is also being introduced in the run-up to the busy Christmas shopping period, a time when businesses need to concentrate on handling volume transactions rather than altering their core systems.

UK financial systems supplier Coda says concerns centre on four key issues. The change will override the traditional pre-Christmas systems lock-down, which is put in place to minimise risk during a key trading period there will be time and cost issues associated with changing price tags communicating price changes and setting a round number price point will be difficult as will handling customer refunds.

Eager said, "For the past few years one of the key strategic IT objectives has been to design and implement systems and processes that enable business agility. This short-notice VAT rate change will be a good test of how effective these changes have been, and will highlight areas that need further attention."

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