Rochdale businesses urged to consider hidden costs of VAT change

Rochdale businesses are being urged to consider all potential hidden costs following the government’s decision to lower the VAT rate to 15 per cent.

Accountancy firm Tenon is advising that although implementing the change is a simple matter, additional costs will be incurred by addressing customer queries, educating staff and other processing costs.

The Treasury has estimated that the VAT change, which took effect from 1 December, will cost UK businesses £115 million, while it will cost the Treasury a massive £12.4 billion, but it can only make educated guesses at the costs beyond the rate change itself. Suggestions from the government range from £10 for small businesses, up to £500 for large businesses.

Ian Thomson, VAT Manager at Tenon in Rochdale, said: “Costs of the rate change will vary wildly from business to business, and it is often difficult to quantify the true cost of such a dramatic rate change. We are advising our clients to consider the costs beyond the simple process of applying the new 15 per cent rate.

“Many of the larger retail chains appear to have passed on the rate change savings of 2.13 per cent, but smaller retailers such as restaurants, hairdressers and hot food take-aways are already struggling in the current economic climate and simply cannot afford to reduce prices, so will have retained their prices at pre-1 December levels. The Government urged businesses to pass the reduced VAT rate on to customers but not all will have done so.”

Despite these doubts, Tenon backs the VAT change, recognising that many Rochdale businesses and institutions, including banks, insurance companies, private hospitals and schools, will find themselves paying smaller bills on many costs. Tenon understands that some businesses have been accounting for the reduced prices at the checkout whilst others have been faced with amending price tickets for many goods on the shelf.

In addition, Trading Standards Officers are monitoring businesses to check the changes have been made.