The temporary cut in VAT has created an administrative headache for many small businesses, as they struggle to adjust prices to account for the small reduction in tax.
Many have complained that the cost of administering the change, which came into force on Monday, has outweighed the benefit in any increase in sales.
Some entrepreneurs have chosen to retain existing price levels and instead provide special offers to loyal customers as a way to pass on the tax reduction. Others have included the cut in more dramatic price drops.
Guy Monson, who runs Proporta, a manufacturer of cases for iPods, MP3 players and other handheld gadgets, decided against changing individual prices on the 1,500 products he stocks. Instead, he has been offering all Proporta’s products VAT-free on the website this week.
“It is easier to announce [a VAT-free promotion] with a straight face to our customers, many of whom have been loyal to us for the last 12 years,” Mr Monson said.
Proporta will still spend up to 200 man-hours adjusting its pricing documents. In addition, it will have to change the figures on sales presentations it gives to the high street retailers that stock its products. Third- party sales account for two thirds of Proporta’s £3m turnover.
“This is the worst possible time for us to divert manhours to a non-essential exercise, it being the busiest time of the year and the most challenging financial period we’ve faced,” Mr Monson explained.
He is also angry that Proporta will have to do the same thing all over again in reverse when the temporary VAT reduction is eventually withdrawn.
Duncan Cheatle, who runs The Supper Club, a networking group for entrepreneurs, said Mr Monson’s reaction was typical of the views expressed by company owners.
“If you only sell to other businesses it is a complete pain in the arse because you have got to change your systems without being able to pass the reduction on to your customers,” he said.
Mr Cheatle has had to prepare letters for every Supper Club member because the VAT change alters the amount each person pays through their monthly direct debit.
“It is costing people and causing headaches, but is not going to make a jot of difference to the economy,” he said.
