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The VAT rise, a rock and a hard place

7 January 2011

As we all know and have no doubt complained about at some point the rate of VAT increased on 4 January 2011 from 17.5% to 20.0%. Although it will increase their expenditure, this might not deter consumers from most small purchases. For example if an item costs £100, the raise only equates to a £2.13 increase.

But for retailers, the increase creates a particular dilemma. The Price Marking Order 2004 requires all retail businesses selling to consumers to display their prices inclusive of VAT. These businesses therefore have 2 options:

  1. continue with their current prices, and absorb the difference (for now at least), or
  2. change the price of all of their non-VAT exempt goods, and incur potentially significant costs in terms of re-pricing, amending till systems and other costs.

The answer will be different for each business and product. Retailers should consider with what changes their customers are willing and able to cope.

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