Bishop Fleming issues VAT warning

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Bishop Fleming tax expert Rhona Graham
Bishop Fleming tax expert Rhona Graham

More than 25,000 south west retailers and manufacturers are poised to face heavy costs when the Government ends the special reduction in VAT rate.

This is the warning from the VAT specialist at regional accountancy firm, Bishop Fleming. According to Rhona Graham, Bishop Fleming’s VAT expert: “While most retailers passed on the benefit to their customers of Alistair Darling’s VAT reduction from 17.5% to 15%, designed to help withstand the impact of recession, this surprise move generated huge costs and workload. Everyone had to re-print their price lists and change their accounting systems.”

On December 31, that VAT cut is due to end. This will require all retailers and manufacturers to go through another revision of all their VAT procedures and pricing.

“Meanwhile, many pundits are predicting that, after the forthcoming election, VAT might well see another change, possibly increasing it to 20%,” said Graham.

All of this presents the south west’s retailers and manufacturers with a dilemma.

“They will have to decide whether to pass on the increased VAT to their customers, or take a further cut in their margin by absorbing that extra VAT. I have one client who will lose £30k on their current stock the moment VAT returns to 17.5% on 31st December,” said Graham.

Guidance from the Government on the VAT change runs to 45 pages, and suggests that HMRC will apply “a light touch” when it comes to errors.

“It remains to be seen how light that touch will be in practice,” warned Graham.

“The fact is that every south west retailer and manufacturer faces a triple-whammy: the administrative costs of yet another price-adjustment, the question of whether to absorb or pass on the return to 17.5%, and the uncertainty about yet another VAT change after the election.

“The fact is that the UK enjoys one of Europe’s lowest VAT rates, so the doom-mongers may well be right in predicting another change to a higher rate after the election,” said Graham.