Retailers ‘may not pass on’ VAT cut
THE Chancellor’s headline statement of a 2.5% VAT cut received a luke warm response from tax experts in the North West.
Mr Darling was applauded for taking such a bold step but some thought it may have a more positive impact on big business rather than consumers.
Many of his other measures were welcomed, such as the change to empty property tax relief and the deferral of one point rise on corporation tax for small businesses.
VAT does not apply to all goods and the cut equates to around £1.85 on every £100 of goods. There was also some doubt as to whether retailers would pass on the cut because the change will involve re-pricing goods from December 1.
Martin Portnoy, tax partner at Ernst & Young said: “With large elements of household expenditure such as essential food, domestic fuel and power, children’s clothes, books and council tax not subject to the top rate of VAT, the impact on lower income families may be muted and it will be families with more disposable income who will feel the full benefit of these changes.”
He added: “The Chancellor will be relying on retailers to immediately pass on these cuts to their customers but, given the need for computer systems to be changed, this may well be wishful thinking. This might give a particular boost to internet shopping who can change prices without re-ticketing all items.”
Barry Stocks, director of BTG Tax in Manchester, said: “Whilst welcome, the cut in VAT is unlikely to result in a massive increase in consumer demand from the man on the street. The 2.5% cut equates to approximately £1.85 saving on every £100 spent on VATable (standard rated) goods and services. As not all goods and services bear VAT the real benefit is significantly less.
“The real winners are the businesses and sectors which have major spending on goods and services, and cannot recover all the VAT. These sectors will want to defer paying the VAT until the rate cut takes effect on 1 December. For example, the Association of British Insurers estimates that the insurance sector will benefit by £70m.”
Commenting on the wider report Chris Fletcher, deputy chief executive of Greater Manchester Chamber, said: “The Chancellor has taken enough action to put money back into people’s pockets and therefore boost the economy.
“We welcome the change to empty property tax relief and the cut in corporation tax, as these were all things we had called for. The extra time to pay tax bills is especially welcome, as it will have a big impact on business cash flow.”
In response to the announced rise in the top rate of tax to 45%, Peter McDonald, human resource services partner at PwC in the North West, said: “This could have a real impact on industries in the region where there are more opportunities for talent to mobilise and move elsewhere – for example, knowledge-based industries such as technological or financial services.
“As a result, UK companies that rely on hiring high-earning talent will have to think increasingly about how to attract top performers.”
