The Chancellor yesterday anounced a cut in the rate of VAT from the current 17.5% to 15%, effective from Monday 1st December.
The intention is to stimulate consumer spending to help businesses but, as Patrick at Blogstorm points out, this could turn out to be a major problem for some online retailers.
The savings are minimal for consumers; just over £2 off a £100 purchase, but as many e-commerce systems will have the 17.5% rate 'hard wired' into them, changes could be difficult to implement before Monday, making some etailers' prices less competitive.
There is also the issue of updating banner ads which display prices and uploading them again to ad servers, another time consuming task for etailers.
To make matters worse for online retailers, Alistair Darling sneaked in a 2p hike in fuel duty to offset the VAT cut.
Online retailers, especially those seeking to attract customers with free delivery offers, are vulnerable to rising fuel costs so this hike, coupled with the possible problems in changing the VAT rates on websites, means that the pre-budget report is not necessarily good news for e-commerce.
Will the VAT cut cause problems for your website? Let us know below...
Graham Charlton is a researcher at E-consultancy. Find him on Twitter here.
Related articles:
Tax needn’t be taxing! Online imports to become tax-free
Graham Charlton is Editor at Econsultancy. Follow him on Twitter or connect via Linkedin or Google+.
Recommended reports
The Internationalisation of E-commerce: A Best Practice Guide
Econsultancy's Internationalisation of E-commerce Best Practice Guide is a comprehensive report designed to help businesses understand the benefits and challenges of selling online in other markets. The report details the complex issues associated with cross-border ecommerce, including pricing, shipping and legislation. The report also contains best practice tips for internationalising the brand online, including how to tailor the user experience for local market needs.
Alternatively, see our How We Shop in 2010: Habits and Motivations of Consumers or Product Pages: A Best Practice Guide.
12:07PM on 25th November 2008
We run our own e-commerce cms system and depending on what versions our clients are using, in some cases we are having to write an automated script to change the vat throughout the system come monday.
Is causing havoc for us and much confusion for our clients but it's easily overcome, in some e-commerce packages, it is easy to implement a vat change (as it with out latest versions of ours). Of course we are having to charge our clients for the manpower required to implement all of this.
3:25PM on 25th November 2008
I suppose it's fair to bring this issue to attention, but I'd be very suprised (and most annoyed) if I had to pay a developer much money to make this change in a modern ecommerce system.
Things like VAT, or any other tax related calculation, should always be planned to be a variable within the system, and easily changed by site administrators.
3:44PM on 25th November 2008
Vincent makes a fair point but the fact that there hasn't been a change in the VAT since e-commerce started (other than changes to energy rates and items changing to/from zero rating) implies to me that the vast majority of systems will NOT have this setup as a simple change. No doubt it is something to insist on in future developed systems but this is likely to be a cost to website owners both in terms of time and money.
I wonder if the pound shop will be reducing all their prices to 98p as they should do? A silly example perhaps but no-one is going to like it if a £9.99 item doesn't come down to £9.78
6:31PM on 25th November 2008
I blogged about the <a href="www.paulrouke.co.uk/2008/11/25/vat-change-what-it-means-for-e-commerce-retailers/">VAT change for e-commerce retailers</a> earlier today and I think that it might end up being a significant headache for smaller or badly-organised retailers.
The actual changes to e-commerce software required are generally trivial for well-designed software, but I do have to wonder how many micro-retailers out there will keep on top of this issue well enough to update their software. We could see a lot of trouble for companies who end up over-billing their customers due to not updating their VAT rate.
Since it has been 18 years since the last VAT change, a fair quantity of the e-commerce software out there will have been deployed, configured and even developed by people who have known no other VAT rate in their adult life. It's an easy lazy assumption to make, and I feel sorry for retailers who may be stuck with some legacy code and a difficult job of updating it.
That said, the overall picture for well-set-up e-commerce retailers is excellent - the cost of implementing the change should be negligible, certainly far less than the cost to a business that will have to re-print hundreds or thousands of physical labels and so on.
4:00PM on 1st December 2008
Our clients haven't had any problem with the VAT changes and have only given posititive feedback as to what the change will do for them. All of the ecommerce platforms that we have developed have the VAT as a changeable parameter and as experienced developers have been able to change all platforms so that our clients can implement the changes for their business on time. If anybody is having difficulties please feel free to call us on 0845 745 2818 and we will give assistance on the issue. Or email at / <a href="wwww.jellifish.co.uk">
2:30PM on 13th August 2009
After upgrade of our retail Website a few years ago to ecommerce software from AceFlex, we are able to change the VAT rates for different product groups at any time with immediate implication to all future orders. We don't need to contact the company to help, because such parameters are changed in our back office on the Web.