VAT Changes for Online Shopping Carts
UK VAT Reduction to 15% - How will it effect Online Retailers
Yet again, dopey Darling has got it wrong! In an attempt to boost the economy, Darling has reduced the standard VAT rate by 2.5%, (try not to get so excited!), from 17.5% to 15%. Woopidoo! With sales down 20% on this time last year, despite stores like Tesco and Marks and Spencer lopping a whopping 25% off many of their items, this price reduction will make little or no difference to sales and will merely penalise retailers - in particular online retailers.
Cost of reducing VAT to 15%
If you have a bespoke online e-commerce solution, ( a website that sells products using a shopping cart), and you don’t have your own webmaster on-site to make the changes for you, it’s going to cost the website owner 2-3 hours of their web design company’s time to make the changes for them and then the same again next year when UK VAT goes back up to 17.5%.
Say the cost of reducing VAT on all the forms, databases, etc for an online retailer, works out at £150 to change it once and then the same again to change it back, that’s a cost the website owner £300 right off the bat. If after expenses, wages, rent, rates, storage, taxes, etc, the website owner makes an average of 25% profit on his products, which is fairly standard, he would have to sell an extra £1,200 of product just to claw back the £300 he’s laid out on making the tax change throughout the website. To some websites, that’s only an hour’s trading, but to the majority of websites on the net, that’s a week’s trading, or even longer. There aren’t many of us can take a week’s wages and throw it down the drain and that’s what Darling is asking many website owners to do.
How to get around it.
I would suspect that most websites will simply stop showing VAT on their products online. After all, other than the financial implications of paying for the change, both now and next year, a product selling at £24.95 is a lot less appealing at £24.51 to a consumer. Yes, the website owner will still have to pay for the VAT figure to be changed on invoices - if they show VAT on their invoices - but at least they will be making a massive £25 on every £1000 spent in their shop, so if the changes to their online shopping cart cost £300, they will only have to sell a paltry £12,000 of product to be in profit!
That’s website owners with one web site. We have clients with, 4, 5, 6, 7, 8 and 9 websites - what about them? C’mon Darling, be serious. Everyone, including the Governor of the Bank of England is telling you this is a big, stupid mistake and it won’t make any bloody difference to consumer confidence and certainly won’t help retailers, particularly online retailers in any major way. My old dad had a saying that would fit my advice for old Ally Darling - “If 100 people tell you you are dead - lie down!”