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Alastair Darling helps make paperwork and confusion

Archive - Originally posted on "The Horse's Mouth" - 2008-11-30 06:46:44 - Graham Ellis

Quite frankly, I'm not convinced that a drop in VAT from 17.5% to 15% is going to bring us much - if any - new business. A hotel room at our top rate of £95.00 should drop to £92.98 ... an awkward sum, as comes from nearly every VAT inclusive price we would change.

It will shake out in the wash for most of our customers who work for VAT registered companies anyway ... so would end up paying the same base price. I understand that VAT is typically reclaimed some six times in this way for every seven times it's paid - so its efficiency as a tax sucks at the best of times. But we do have a small proportion of our customers who are not VAT registered - either being private individuals who stay at the weekend, or overseas visitors; alas, I don't see many "buying decisions" being based on a 2 pound and odd pence saving.

But it's not just a non-event. Systems need to be changed to reflect the new VAT rate. Our own course booking page and hotel room booking page changed very easily as they were coded with maintainance in mind, but never the less Lisa is left with an accounting nightmare of courses, rooms and events that were booked before the announced changed that need to be re-confirmed at slightly lower prices, and she is not looking forward to fighting the Sage software that she uses for our accounts to reflect the 17.5% rate to 30th November and the 15% rate to 31st December in the current tax quarter.

I really dislike the idea of our pricing going from a set of nice, round numbers to some really nasty odd values - and I suspect that other suppliers feel the same. A TV that costs £399.99 at those high street stores that always charge "a penny shy" should come down to £391.48 ... but I would be surprised if it does; some headline products may come down further to £389.99 but I would fully expect most to quietly remain at £399.99 - in effect, an improvement in margin for the retailer, at a loss to The Chancellor for non-VAT registered purchasers and a price RISE for other businesses. And, alas, businesses need to make a profit, and pass price rises on.

So we're left in something of a quandary. Do we simply cut our VAT inclusive prices by £2.13 in every £100.00 ? And what then if our suppliers don't follow the same scheme ... we would be out of pocket. Do we leave our prices unaltered, and quietly thank Mr D for helping our business (but what would our customers think, and would that be morally correct?) Or do we come up with some other scheme, taking a whole fresh look at pricing?

• Any events and hotel rooms were already booked at a fixed, VAT inclusive price will indeed be invoiced at a 2.13% lower rate - passing on the VAT saving on the contract that's already in place.

• Training courses which are quoted VAT exclusive anyway will simply have the lower VAT rate applied when invoiced, resulting in a 2.13% lower bill. This will also apply to any other short term bookings that we receive.

• Hotel room prices are being slightly reduced - but NOT across the board. It is our intent that the new VAT inclusive prices should be easy-to-quote numbers, that we should pass on the VAT saving, and that the prices should also be fair in relation to each other. So that top rate of £95.00 for a double I talked about at the beginning is down to £90.00 - which is a saving of more than just the VAT reduction. We're taking the opportunity to even out the £70.50 delegate rate down to £70.00 - a slight saving. And the single rate remains at £80.00. Nice and easy pricing - £90, £80 and £70.

• In the near future, we'll have new pricing for the hire of training and meeting rooms at Well House Manor and those prices will reflect the actions of our suppliers; this is a particularly cost sensitive part of our business, and also one where we have the most VATable supplies being purchased in to pass on to the attendees - so a promise at this point to cut our price long term in line with the VAT change is simply one I cannot make.

Oh my goodness, Mr Darling ... did you really think this through?



Update ... VAT is 20% from 4th January 2011. Hotel rates are now £95.00 (double), £85.00 (single) and £72.00 (delegate) to reflect this tax increase. Course prices - which we quote without VAT - are unaltered; most of our training delegates are paid for by businesses, and although the businesses will pay a higher VAT inclusive price, they will be able to reclaim that extra.

You'll note that the rack rate of £95.00 is only returning to the rate we charged several years ago, when VAT was at a lower rate ;-)