VAT rate cut - will you be dropping your prices?

[gibby]

After speaking to several businesses near us, all of them are not dropping prices at all in line with the vat cut.

Are you?
Do you think it will make any difference to sales?


the best option I could see is if vat was dropped altogether as we WASTE so much time on it. This time would be far better spent creating new business than doing the govs dirty work

G

 

[movietub]

Yes for one sensible reason:

The business community generally understand that this is a token gesture of little value to anyone. However the great british public. I.e. our customers and collective boss... They will be expecting everything to be a bit cheaper!

So I'm going to slap a big banner on my e-commerce sites saying loud and proud 2.5% vat has been taken off all our products and that we are NOT increasing our profits a penny.

the tiny % just isnt worth pocketing and if you do it will be instantly obvious to any customers that notice your prices havn't changed a bit!

I was at the pub earlier listening to people talking about this - they are really expecting things in the shop to be an overall 2.5% cheaper which obviously doesn't quite work out...

 

[LINGsCARS]

Me too, banner up yesterday:

The fact I can't/haven't changed any prices yet and the fact that the rate will only apply to partial contracts (rest at 17.5%) is neither here or there.

It's the thought that counts

 

[Tom McClelland]

We sell business to business, and quote all our prices net anyway so this doesn't directly affect us, as a business. It is retail businesses that specifically need to decide what to do.

My take on this: The cost of altering prices is large. Lots of big ticket items are price-pointed (eg £49.50, or £39.50 or £99.50). It doesn't make sense to drop such items 2.17%.

The OP said 2.17% is "tiny" and therefore it should be passed on. I have a different angle which is that while it is tiny to the end-purchaser it is a huge proportion of the retail markup. Lots of retail businesses are under pressure and if they keep this money their margin will grow by between 5% and 30%. To a struggling business that could easily be the difference between decent profitability and folding. If the retailers keep this money then retail jobs could get a lot safer, albeit at the expense of further giant increases to government debt that was dangerously bloated before the recession even began.

All that said I think the entire package announced by Darbrown is nonsensical. No part of it stacks up at any level as far as I can see. And if anyone seriously believes that the current plan will keep government borrowing "down" to a mere £118 billion a year I've got a nice bridge here for them to buy, and a letter from a kind gentleman in Nigeria.

 

[deniser]

My products are zero rated anyway so not much help to me. I hope my customers realise that.

It's all pretty irrelevant anyway when we're all forced into early discounting by market conditions.

On the few standard rated items that I do sell eg. gift wrap at £1.40 per sheet and cards at £1.99, if anyone says anything I will perform the calculation on a calculator and give them a discount but not as a matter of course as everything has been prelabelled.

It's about £2.12 on each £100 isn't it (have I done that right?)? So on a typical card the saving will be negligible.

 

[Mister B]

Well, I'm most certainly not passing the saving on. As it stands, my products offer potentially the best value within the industry and as such, I see no need to reduce the prices to ridiculous price points.

The only effect that it has had, is that prices may not go up as much as they would have done without the reduction in VAT. Because of the increases in other costs and fall of the GBP/USD, I am already under pressure to put prices up.

Like Deniser, if anybody kicks up a fuss, (which I doubt,) then I can still offer a discretionary discount.

Mister B

 

[Mattonella Tile Studio]

Big dilemma here. Anything not price tagged will go down in price. The problem is we must have thousands of ranges that are tagged. Many of these cost us more to purchase now than when they were labelled but we absorbed the costs rather than relabelling. If we do a full relabel then it makes sense to adjust the price also to reflect the increased purchase price. The net result is that many of our products will increase in price.

 

[movietub]

Big dilemma here. Anything not price tagged will go down in price. The problem is we must have thousands of ranges that are tagged. Many of these cost us more to purchase now than when they were labelled but we absorbed the costs rather than relabelling. If we do a full relabel then it makes sense to adjust the price also to reflect the increased purchase price. The net result is that many of our products will increase in price.

Nightmare - we used to have a system that was so long winded to change we could never really react to changes as we should have done. I think you need to find ways round this.

If you do change all prices and they go up can I suggest you don't make the changes the day people expected lower prices!

 

[Dominic Taylor]

We will be passing the cut on in full

 

[printingcom]

We advertise our prices excluding VAT, so will be passing on the change from Monday. The majority of our customers are VAT registered and a lot of our most popular items like leaflets and booklets are already zero-rated for VAT anyway, so it's unlikely to have much impact.

Talking to some of our Business-to-Consumer customers like hairdressers, takeaways and retailers and we're seeing a real mixture of views already. Some are keeping the VAT reduction for themselves and not changing their prices. Others are going up-front and passing on the discount straight away. Some think its a hassle having to change all their prices and others think it will help their sales.

Anyway, we've made a plasticine chancellor just for fun...

 

[LINGsCARS]

My products are zero rated anyway so not much help to me. I hope my customers realise that.

It's all pretty irrelevant anyway when we're all forced into early discounting by market conditions.

On the few standard rated items that I do sell eg. gift wrap at £1.40 per sheet and cards at £1.99, if anyone says anything I will perform the calculation on a calculator and give them a discount but not as a matter of course as everything has been prelabelled.

It's about £2.12 on each £100 isn't it (have I done that right?)? So on a typical card the saving will be negligible.

but... I am waiting for the tabloid campaign against .99p pricing.

On VAT items, it will be obvious that nothing is being passed on.

.99p will become a negative, I think.

 

[printingcom]

but... I am waiting for the tabloid campaign against .99p pricing.

On VAT items, it will be obvious that nothing is being passed on.

.99p will become a negative, I think.

I think you're right. And it'll become even more confusing because of some of the complex vat rules... cakes are 0% VAT but biscuits are 17.5%. So Jaffa Cakes won't be reduced but Kit Kats might be.

 

[gibby]

I think you're right. And it'll become even more confusing because of some of the complex vat rules... cakes are 0% VAT but biscuits are 17.5%. So Jaffa Cakes won't be reduced but Kit Kats might be.

We have the same problems with too many different rates
some foods are 0% some are the full rate. Some baby stuff is 5% but our suppliers charge us 4.5% on baby stuff.
Shoes are full rate but kids are vat free - unless we put them all on the same web page - then we have to charge vat on all of them - crazy

Im sure for small business VAT is just pulling us all down

g

 

[Babi Pur]

Yes we will be passing it on to customers. Luckily a lot of our products are 0 rated so a bit less work.

I'm sure everyone will be spending like mad now that the vat has been cut

 

[Esk247]

Not sure if this helps anyone:

Subject: Trading Standards News Flash - The effect on price displays ofthe
change to the rate of VAT

The effect on price displays of the change to the rate of VAT

The Chancellor has announced the intention to reduce the rate of VAT for 13
months from 1st December. If this affects your business then you need to be
aware of the Pricing Practices Guide issued by the Department for Business,
Enterprise and Regulatory Reform on this subject.

The guidance states:

‘Should your price indications become misleading because of a change in the
general rate of VAT, or of other taxes paid at the point of sale,
you should make the correct price clear to consumers. For a period of 14
days from the date a VAT change takes effect, a general notice or notices
may be used to indicate the adjustment necessary to take account of the new
rate.’

A copy of the full guidance leaflet is available on-line at
http://www.berr.gov.uk/files/file46254.pdf

If you would like to discuss this further, or you have any questions on this
or any other trading standards issue, you should call us on 01609 534868.

 

[natkits]

Yes, I'll be passing it on, despite already having absorbed a 6% price hike from my suppliers this year.

ho hum!

 

[Babi Pur]

Of course it's not going to help anyone. It's not going to make much difference to a purchase to encourage more spending. Waste of time and money.. but we will be passing it on.

 

[sysops]

but... I am waiting for the tabloid campaign against .99p pricing.

On VAT items, it will be obvious that nothing is being passed on.

.99p will become a negative, I think.

You're wrong Ling, it works both ways.

We use .99 pricing because research shows it converts better, and people are used to it and comfortable with it. It's very, very widespread, and this won't change any time soon.

In order to do this, we round prices, both up and down, to achieve .99 prices. This means we end up with lower margins on some products, and higher margins on others.

When the price of a product from one of our suppliers goes up by 5%, we absorb this increase in order to maintain the .99 pricing. This has happened to many of our products, especially over the past 2 months with the £/$ rate bombing.

You're in a fortunate position as far as margins go, because you can basically change your prices day to day, as your supplier prices (or VAT) change.

Most retailers can't do this, for many reasons.

 

[LINGsCARS]

You're wrong Ling, it works both ways.

We use .99 pricing because research shows it converts better, and people are used to it and comfortable with it. It's very, very widespread, and this won't change any time soon.

In order to do this, we round prices, both up and down, to achieve .99 prices. This means we end up with lower margins on some products, and higher margins on others.

When the price of a product from one of our suppliers goes up by 5%, we absorb this increase in order to maintain the .99 pricing. This has happened to many of our products, especially over the past 2 months with the £/$ rate bombing.

You're in a fortunate position as far as margins go, because you can basically change your prices day to day, as your supplier prices (or VAT) change.

Most retailers can't do this, for many reasons.

I do understand that, I understand your pricing isn't so much logical as emotional.

However... just as when oil goes down and the pump price does not compensate and people get annoyed, they will ID .99p price points as "unchanged" prices, surely?

Or do they not notice?

My suppliers are so daft, they mostly price-point to ME at £x99.99 ex vat. Fools. They do not appreciate that my customers mostly see inc VAT prices.

 

[360interactive]

Love that plasticine darling, great use of imagination.

We are passing on the reductions, starting from now. I have been emailing recent quote requests with an amendment. Personally I think its only fair.

A few people have already come back to me since the announcement asking if their quote will be adjusted, who am I to refuse it?!

 

[sysops]

However... just as when oil goes down and the pump price does not compensate and people get annoyed, they will ID .99p price points as "unchanged" prices, surely?

Or do they not notice?

I don't think they do actually - I don't think they think about it at all! Many of our products have fluctuated in supplier price by up to 20% this year, far more than the VAT difference, but our prices have stayed the same.

When the £ is strong against the $, how many customers expect consumer goods prices to change?

What % of consumers understand what VAT applies to and what it doesn't?

When VAT goes up to 20%, will we put up our prices? On a few lines which are pushed passed the rounding point, sure - but not on most lines.

In our sector, the customer makes a decision there and then about whether the product is worth the asking price. If it is, they buy it. If it isn't, they don't.

If I'm buying a £20 toy (or should that be £19.99), I'm going to care a lot less about a 2.5% saving which equates to 50p than if I'm calculating my monthly car payments for the next 2 years, where that 2.5% could equal a couple of hundred pounds.

 

[Draugen]

Most of my prices will be changing next week anyway, some down and some up. This has been planned for a while and is due to HMRC pulling new rules out their backside for which of our products can be zero-rated and which should attract the full VAT rate, whether it be 17.5 or 15%! I won't be changing anything to reflect the VAT reduction though.

As yet another initiative to reverse soft sales though, I will be dishing out bounceback cards over the next few days giving customers 50% off on their next visit! No one can complain about not having the VAT reduction passed on with that kind of discount!

 

[nass]

imo this has been misunderstood... I think the benefit it'll have WON'T be so much consumer-led "whoopie 2.5% off so cheaper so I'm going to spend a bazillion squid" BUT company-centric "ok so I keep a tiny little bit more profit over the longterm that might let me keep 1 member of staff". Bottom line is the whole world will be offering discounts of one sort or another sooner or later so the VAT change will be lost amidst all that - but keeping the little bit extra won't

 

[Nigel at Burton Sweet]

Our B2B business is all quoted plus VAT so yes, we'll just change the rate we charge from Monday. For our non-business clients we will probably hold over November invoices and issue them next week at the lower VAT rate.

I also run an online music store and we have already programmed our price reductions in ready for Monday. The trouble is, this reduction is only for 13 months, it's going to be a real challenge to get prices back UP at the end of 2009!

 

[MichaelP]

I do understand that, I understand your pricing isn't so much logical as emotional.

However... just as when oil goes down and the pump price does not compensate and people get annoyed, they will ID .99p price points as "unchanged" prices, surely?

Or do they not notice?

My suppliers are so daft, they mostly price-point to ME at £x99.99 ex vat. Fools. They do not appreciate that my customers mostly see inc VAT prices.

I think you can leave the rpicing at 99p - who on earth wants to carry more silly change in their pockets!

 

[lattod]

This is just silly.

The banks havent passed anything on, and yet small businesses are expected to pass on this 2.5% saving, change accounting systems and the like and as usual gets hit.

I also think that its probably not the wisest to state whether you are or aren't dropping prices - what if you don't drop the 2.5%, and the offer 20% off - that will in fact be breaking the law as its not technically 20% off (the item has to be on sale for 30 days within the previous 6 months for it to class as a discount off prices) - very confusing.

Our reference fees (letting agent) are £95 - so now they're £92.98 for a reference fee - what would you do ?

Its a ploy aimed at the media to try and make the chancellor look wonderful, but a ploy that falls way short of what needs to be done.

2.5% off retail prices simply wont help, another interest rate rate and a way to force the banks to lend at sensible rates and sensible loan to values is the way forward.

To bring consumer confidence forward we have to get the purses opened, 2.5% simply won't cut it.

cheers

 

[Mattonella Tile Studio]

I've spoken to a customer who looked at our 17.5% inclusive price on the website, but told him that it will be reduced to 15% as from Monday so he'll be saving. We calculated the good news for him and it was a whopping £13. His excitement died away a little.

 

A couple of thoughts.
1 You don't have to reprice to pass the cut on. it should be 25p on £10 so what is rather more than your current average spend? Say you decide to go for £1 off on £20+ orders. Point out that this is more than the VAT cut but don't point out that it will probably cost you nothing as it will be covered by the VAT on the orders under £20. No relabelling and simple enough not to waste time at the till.
2 If you run (as I used to) a shop which sells mostly zero rated goods then you can be in the eviable position of getting VAT back every quarter. Unfortunately the government has just cut one of the few real advantages that they offer small startups. So another own goal for mr darling and co.

 

[uksoftwaretech]

[FONT='Verdana','sans-serif']I am at loos here any items I have purchased before the drop why would I need to drop my prices technically no one will compensate me for the losses.[/FONT]

 

No you don't lose because you claim VAT actually paid and received (on the basic scheme anyway). The rate does not affect things except in so far as the amount paid and claimed goes up and down

 

[trevormuk]

This cut in VAT is aimed solely at the end consumer, and the money in their pocket.

A cut in the rate of VAT is simply less tax for the end consumer to pay - it does not affect the retailer or the business profitability.

Lets face it if they believe they are getting something cheaper, they are more likely to buy it - which is a benefit to the retailer. Given the choice of no sale or yes sale but at a lower price (which doesn't affect the original cost or margin of the item) - I know what I would take.

If I am out shopping with my consumer head on - I would want every retailer to show a lower price, as the price of the goods I am buying is cost price plus HMRC tax
Cheers

 

[Deleted member 27408]

I understand sellers of high priced items (cars, furniture etc) dropping prices but local shops and even some of the larger ones that sell low priced products of two or three pound (like Wilkinsons etc) I can see it being a nightmare. The thought of changing all their shelf price tags, bar-coding, banners and tills etc to show a few pence saving, knowing it all changes again in 12 months.

We mainly sell mid and high value telecom products to businesses so our prices are mostly quoted ex VAT. Luckily our online store is easy to change as products are priced ex Vat on each page and the VAT is added at the check out so we don't have to change all our web pages.

Whilst we will pass on the changes as it is relatively easy I fully understand those that will not be passing it on.

Finally I it will be interesting to see if all this change has the effect Darling says it will - personally I think not

Steve Kane
Enabling Communications Ltd - Phone Systems - Video Conferencing

 

[smenews]

Yes for one sensible reason:

The business community generally understand that this is a token gesture of little value to anyone. However the great british public. I.e. our customers and collective boss... They will be expecting everything to be a bit cheaper!

So I'm going to slap a big banner on my e-commerce sites saying loud and proud 2.5% vat has been taken off all our products and that we are NOT increasing our profits a penny.

the tiny % just isnt worth pocketing and if you do it will be instantly obvious to any customers that notice your prices havn't changed a bit!

I was at the pub earlier listening to people talking about this - they are really expecting things in the shop to be an overall 2.5% cheaper which obviously doesn't quite work out...

Interesting to know if your pub landlord will be passing on the saving?

 

[Monton]

We will not be passing on the vat cut as we have absorbed several cost increases recently and we already sell very competitively. Its also worth asking as this cut rate is only temporary will all the companies advertising that the rate has been passed on be advertising the fact that prices will be increased come jan 2010 ?? Or will prices be kept low resulting in a cut in margin?? I actually think neither will happen other than the consumer being fiddled. Chances are most businesses passing on the cut that sell with a retail price instead of a cost+vat price will pass on the cut then soon revert back when the news has passed. Ie if you sell £1.99 and pass on the rate cut so price is now £1.95/1.96 ish how long will it be until its back to £1.99?? And seeing as though retail prices are entirely the retailers choice why not just stand firm and say our rice is £1.99 and thats a good price for the product !

 

[davidjgoss87]

What interests me is what will happen a year down the line.

Sure, customers want their 2.5% cut reflected in prices now, and that's fair enough, but what happens when it goes back up after next Christmas? Do you think people will be happy about prices going up? Especially as I am hearing noises about it going up to 20%. There will be a big fuss and people will demand that prices remain unchanged.

As usual, retailers and SMEs will lose out, because as usual, people have forgotten that we are capitalists and that people go into business to make money. So businesses are always made to pay.

 

[FE]

I note UKBF have held the 17.5% VAT rate on the membership to this site

I only noticed when i went to upgrade!

Hopefully this will be reduced soon

FE

 

[adam]

How many times though have you done your sums and in retail, the product should have been sold at £1.02 but you think, oh well, not to worry, just put it out at 99p. No one ever said in this situation, "oh yes, well er I think we really must stick to the 84p plus VAT price point".

You sold it at 99 and had to pay back 15p. Now you only need to pay back 13p to the VAT man and so you have made a bit more money but you should have been selling it £1.02 or 87p plus VAT. So you should have made say 30p selling the product but were only making 27p as you had it reduced, now you get 2p of that back.

So why reduce prices if you selling in an all inclsuive environment? Makes no sense. In veding I can't sell a Mars bar at 49p!

I was in a national retailer last week and happily "agreed" to pay 99p for a bottle of drink by picking it up and taking it to the tills. I was a little shocked and bemused to only be charge 97. Still I pocketed the difference and walked out.

I didn't go in again and think, oh look at this, how jolly nice my price point is now £1.02 for spending.

 

[davidjgoss87]

I've worked out that if you normally spend £1000 on VAT-applicable goods/services in a month, you will save about £18 a month with this new tax. To a person, that is fairly insignificant and I personally think it won't achieve a lot. For everyone in the country put together, that is a big loss for HMRC. Who gains?