By 6 years ago in Coding

VAT Cut Implications for Ecommerce Sites in the UK

In todays pre-budget report the Chancellor introduced a reduction in VAT rate from 17.5% to 15% to help kick start the economy and increase consumer spending.

VAT has been set at 17.5% since before ecommerce was invented and this latest change is going to cause a huge headache for ecommerce websites.

VAT Cut Implications for Ecommerce Sites in the UKSome systems are likely to have VAT hard coded into the ecommerce systems but even advanced programs will still need to be adjusted to reflect the new rates.

A number of retailers without a retained website development company will be unlucky enough to have the VAT rate hard-coded into their CMS. This makes price changes before next Monday almost impossible.

Another major issue will be updating banner adverts – a number of which have prices included in them. Most small businesses don’t update banners on a regular basis and many will have been using the same ones for years. Unless the company has retained the original designers and source images making changes to these will be almost impossible meaning prices will be uncompetitive from next Monday.

Fixing banners in a multitude of sizes and re-uploading them to ad-servers across the web isn’t a quick task.

As I write this more and more implications spring to mind. Google Adwords campaigns often have prices in them, Google Product Search feeds will all be wrong straight away.

What do you think the conversion rates will be for shopping carts displaying 17.5% VAT next week? Visitors will just go straight to competitors websites.

For help with VAT, ecommerce and banner adjustments contact Branded3 today.

Thanks to Online Backup Technology for the tip.

By Patrick Altoft. at 6:48PM on Monday, 24 Nov 2008

Patrick is the Director of Strategy at Branded3 and has spent the last 11 years working on the SEO strategies of some of the UK's largest brands. Patrick’s SEO knowledge and experience is highly regarded by many, and he’s regularly invited to speak at the world’s biggest search conferences and events. Follow Patrick Altoft on Twitter.

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31 Responses to “VAT Cut Implications for Ecommerce Sites in the UK”

  1. It’s 2.50 saved in every 100 quid you spend on VATable goods and services, so not everyday stuff like bread and veggies. 2.50…that’s less than the price of a pint of beer per 100 quid spent. I really wonder how they think this is going to kick start the economy. With the banks in debt to the tune of hundreds of billions of pounds, dozens of companies laying people off and faeces generally hitting every fan in sight (at least according to the BBC), it’s unlikely that saving less than the price of a pint is going to save us.

  2. Scott says:

    It’s also unlikely the saving will be passed on by a lot of companies who will avoid dealing with the headache and may just ‘pocket’ the difference theoretically raising the value net of VAT for their books.

  3. Dick says:

    More of the same, politics over sound government, new labours demonstration on “How to get a deep hole deeper!”. Thanks to our “prudent” fiscal policies, we topped the lists for national endebtedness, and most heavily taxed. The future’s orange? I think it’s a very deep red! We’re sinking in the BROWN stuff and that bunch of clowns think a fiver off a household appliance, which will certainly be manufactured overseas, is going to revitalise our economy? Who needs stand up comedians

  4. Dick says:

    Who’s for some lateral thinking? Yes we are in a global recession, and “fraudulent” banking practices were largely responsible for pushing us into it. But why were we so vunerable? I believe that western economies were totally unstable, pressurised by the current fuel prices. Bush and Blair lied and cheated our countries into a war in Iraq, the heart of world oil production, this was the golden opportunity for speculators and producers to hike the price of crude. You reap what you sow!
    We are going to suffer, but it will be no comparison with what those two have put the people of Iraq through, and for what?

  5. Stever says:

    2.5% is a meager amount on the consumer’s side when we look at individual purchases. But equates to a massive amount of revenue no longer in government hands. Less “ammunition” government can use for bailouts, infrastructure investments and deficit budgets needed to soften the impacts of what is to be a protracted worldwide recession.

    Tax cuts at this time are irresponsible and shows that the government has no grasp on the realities to come as this global credit bubble deflates.

    When politicians speak of tax cuts it’s always for their political benefit. This is a sugar coating to make it look like they are doing something to help consumers. What’s truly scary is they might be naive enough to believe it will stimulate the economy. OMFG!

    Ya, sorry to hijack your post. It was supposed to be about VAT prices in online shopping carts. Opps, I went and got political.

  6. Well looking on the bright side it should be a field day for HTML programmers fixing all those ads.

  7. [...] VAT Cut Implications for Ecommerce Sites in the UK [...]

  8. speakchinese says:

    Nice blog, thanks for sharing this.

  9. Sam says:

    the implications for the thousands of VAT registered e-commerce sites in the UK could be big.

  10. Luke says:

    Its funny how much people complain, everyone is a money expert and instantly knows how to run a country! People moan about the government never doing anything and when they do its wrong, seriously think about how difficult it must be to run a country and actually make everyone happy, when they do give pensioners more money its met with people ranting and raving at how the country is going into the red. I think people should give them some slack and try to understand how hard it must be running a country.

  11. Dick says:

    With all the serious unsolicited discounting going on, do you really think anyone will notice a further 2.5% discount? Do you honestly believe many of the companies will pass it on? It’s just another huge debt that we will have to pick up in a couple of years time. There is a real need for fiscal measures, but the real victims, the pensioners and the soon to be unemployed will not benefit at all, they are unlikely to be buying much at all that attracks VAT. This measure wasn’t thought through, it’s a damned expensive damp squib. This problem demands some entrepreneurial flare. Spell it out, if you spent £100 a week on vatable goods, you’ll probably be about £1-£2 a week better off [allowing for the companies who won't pass it on], how much of an impact is that going to have on your local economy? As usual, the rich, who can take advantage of this situation will benefit on large purchases, though again it will pale against the discounts already available.

  12. Dick says:

    Rant and rave? What planet are you from? Haven’t you noticed, they don’t listen!

  13. Charles says:

    It would be nice if they made it permanent, with a guarantee that it wouldn’t be increased for X years. That would generate more e-commerce out of the UK because right now our VAT rate is uncompetitive compared to other EU nations.

    But, with it being only temporary, it will just cause problems. And 2.5% isn’t that much.

    I was buying a bunch of kit for myself last night, and I thought about waiting until next week so I could shave off 2.5%, but it just wasn’t worth the wait…

  14. This could be a major headache for people running ecommerce websites, or even stand alone database or software applications. There are companies out there (mine included) that are there to help though – Solutions to software problems with VAT change to 15%.

  15. Kerstin says:

    I’m not a money expert – far from it. I just wish the government would think before saying “hey, let’s trick ‘em by reducing VAT but increasing prices on petrol and alcohol and cigarettes”. It doesn’t make any sense as the actual savings might not really entice people to buy more (wow! I saved £10 on my new sofa!), and represents an overhaul to e-commerce systems in the UK in less than a week. Maybe I’m overly skeptical, but this seems like such an idiotic idea to “fix” the economy.

  16. daral says:

    Report the Chancellor is very well. Report is useful for information of finance student. This report is financially is useful and important.

  17. Peter says:

    I am currently in the process of completing a huge Linens e-commerce site which has over 1500 products and variations.

    Cheers Mr Chancellor

  18. Allison says:

    So much for helping SMS business’s Mr Darling, my website people are going to charge me £140 + vat (at a rate of 17.5%) for changes to the VAT rate, they also tell me that should there be any complications I will be charged extra for that! What were you thinking of….

  19. As mentioned above, £2.50 saved for every £100 spent, or even £25 saved for every £1000 spent just doesn’t cut the mustard for me (and quite possibly a huge amount of the population). Admittedly I’m no economist so maybe I’m missing a trick or two, so I’m happy to be enlightened.

  20. Adrian D. says:

    Let me play devils advocate here…

    The government reduces taxes and everyones complaining ?
    My God, what would have happened if they increased it to 19.5% instead ?

    Perhaps now would be a good time to have programmers set up tax rates as variables that can be pulled from an online database so that future changes only involve the changing of one variable in one location. A change in that variable would update the tax rate in all Banners and Adverts.

    Its 2008 folks, its not like we dont have the technology to do this.

    Tax rates change, its a fact of life, let them reduce it more – eliminate it even.

    Adrian D.

  21. Marcus0019 says:

    It’s all just a great big smokescreen.
    Any potential benefit to the consumer will be far outweighed by the costs of implementing this 2.5% shaving off the rate of VAT.
    The knock effect of having to adjust all my regular incoming and outgoing invoices for 13 months before reverting to 17.5% is both unwelcome and ineffective.
    This will in practical terms cost me (a small business) far more in admin than any possble saving – utter waste of time.
    Poorly thought through peice.
    I for one will be increasing my net pricing so that total ‘retail’ values are not affected.
    Is that what yu wanted mr Chancellor?

  22. Hizza says:

    This VAT reduction is a nightmare for us in the e-commerce industry. We are already seeing a huge pick up from clients looking to upgrade their existing websites. The strain that’s going to be put on the nightmare of implementing this outweighs any realy benefit. Solutions to the VAT reduction.

  23. [...] intention is to stimulate consumer spending to help businesses but, as Patrick at Blogstorm points out, this could turn out to be a major problem for some online [...]

  24. Tom says:

    I changed the VAT rate on my website in about 2 minutes (and it didn’t cost me anything to do) . If your site is designed so badly it can’t change easily to things like this I suggest you get a better web designer. I designed my site myself so I guess other people aren’t as fortunate.

    I agree the small change will probably make little difference to the econony. But Ecommerce is one industry that really should be flexible in situations like this. I can understand Bricks and Mortar businesses having trouble.

    I can’t be bothered sorting out someone elses messy designs, but if you want a site that can move with the times without charging you extortionate rates, come see me!
    (not spell checked)

    Tom

  25. Alex says:

    Hi,

    I think some people are having a fundamental misunderstanding here. You don’t save £2.50 for every £100 spent, you save £2.50 for every £117.50 spent.

    It is a important difference as you cannot simply get the change implicated by reducing your prices by 2.5% – if you do that, you will be eating into your margin unecessarily.

  26. Mike says:

    It really shouldn’t be a big deal for e-commerce sites to update their item prices. Hard-coding a tax rate is a silly idea in the first place…let’s hope not many of them adopted this approach! Banner images on the other hand will be time consuming.

    If the VAT is going to fluctuate further in the future then businesses would be better off just advertising their product banners to say “£xx.xx + VAT”, like they do in the U.S. However, the U.S. does have a different tax rate in each State, making it more worthwhile.

  27. A cut in Vat for any period of time is of course good. Business that uses and charges a fair amount of Vat has received the benefit of additional income and increased sales during the two year Vat reducation period. There has been complications for many UK websites, although there has also been benefits. Role on 20% Vat in Jan 2011.

  28. The rise in the percentage of VAT in e commerce business is continuously disturbing the scope of business to a certain extent. The rise is VAT percent will result in certain changes, which will effect directly or indirectly to everyone.

  29. Value added tax – Wikipedia, the free encyclopedia
    en.wikipedia.org/wiki/Value_added_taxA value added tax or value-added tax (VAT) is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. thanq for shearing clearly the concept

  30. Howard Graham says:

    It’s really a good news for small businesses or startup E-commerce website to having reduced Vat cut implications but it not will be easy to implement the change for many e-commerce retailers in such a short period.

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