VAT cut is mixed blessing for retailers

Implementing the VAT reduction is proving to be a headache for garden centres. Matthew Appleby reports.

Scotsdales used signage to inform customers of the VAT cuts - image: Scotsdales
Scotsdales used signage to inform customers of the VAT cuts - image: Scotsdales

The pre-budget report cut VAT by 2.5 per cent - from 17.5 per cent to 15 per cent. But while this tax cut may seem to be a good thing, it is proving more complicated for garden retailers.

Garden centres are looking beyond the hassle of this VAT reduction, which will stay in place until January 2010, when the full VAT percentage will be reinstated.

And while Greenfingers is calling on retailers to get customers to donate the 2.5 per cent to the charity, Hillier garden centres is taking this opportunity to cut five per cent off everything.

Hillier managing director Andy McIndoe said: "The VAT changes are an issue for everyone because, realistically, the cost of implementing it in-store in terms of changing prices and point-of-sale materials is astronomical and that hasn't been considered.

"We are implementing a five per cent discount at the till on everything, whether it has got VAT on it or not.

"We are going to double the saving because we believe this is intended to make a difference, but won't, so we'll be taking the discount off the bottom line of the bill regardless of what people buy," McIndoe added.

"I want to turn it into a positive because I can't bear the thought of going through the motions of customers having to check what is zero-rated and what isn't. Customers don't understand that.

"I don't think we'll see a boost in sales but I want to create a feel-good factor among customers.

"We'll be running the discount through Christmas and January and that gives us a couple of months' grace to get our house in order by spring, when we would have been changing point-of-sale material anyway."

Van Hage chairman Chris Roberts said: "We are concerned about the re-pricing of a large proportion of the store.

"We'll probably show the discount at the checkout. We'll re-price everything after Christmas.

"We've got thousands of Christmas decorations that are priced up, so to redo it all will take a lot of time.

"We'll have to put a lot of information around the store because many items we sell don't have VAT on them anyway.

"It will cost us a fair amount of money in making the changes but once our Christmas period is over, our stock levels are at their lowest of the year so that will make a difference."

Problems have arisen because the VAT cut was seen as being expensive to introduce, and retailers felt the cut was too small to drive any new sales.

Garden & Leisure operations director Carol Paris said the cut could cost £50,000 to introduce, while Webbs managing director Boyd Douglas-Davies said the move was "a waste of time".

Squire's managing director Dennis Espley introduced the cut early on November to ensure the group missed no custom before the official date on 1 December. He said: "We did it so we are not left behind. It's good to give a bit back occasionally. Technically it's not very difficult for us because we don't have EPoS. We're just giving a discount at the till."

But about the suggestion of giving the 2.5 per cent tax saving to Greenfingers, he said: "I can't see how you can make people give money to charity. People would prefer the choice."

And Espley added the move was unlikely to make any difference to sales, a view that HTA retail committee chairman Caroline Owen, manager of the Garden Retail Award-winner for best garden centre Scotsdales, agreed on.

Scotsdales has started to offer 2.5 per cent off everything from the till, rather than through EPoS, which is proving difficult to change in time.

Owen added that Darling's proposed changes to corporation tax (increases delayed until 2011), trading losses (carried back) and national insurance (employers contributions to go up) may not be relevant if a new Government comes in before they are implemented.

The HTA says that the reduction in prices you see will probably be around 2.1 per cent because of the way VAT is calculated.

Retailers' choices are:

- Reduce prices by 2.13 per cent and inform customers.

- Leave prices unchanged - meaning, take the extra margin but risk upsetting customers.

- Leave prices unchanged - but put the difference into promotions.

- Donate the VAT cut to charity.

There will be no change to the price of goods that already have no or a lower VAT. Most basic food items and younger children's clothing will be unaffected, since they do not carry any VAT.

Even where VAT charges fall, not all prices will follow. For example, the falling value of the pound means that some imported products may become more expensive.

Call the HTA VAT line on 01962 735350 or email vat@thevatconsultancy.com

CHARITY DONATIONS

Greenfingers is calling on garden centres to stick up a point-of-sale poster that reads "Donate the VAT saving to charity" at their tills instead of re-pricing stock.

Poplars Garden Centre owner and Greenfingers chairman John Little said: "We're making it very easy for garden centres as they do not have to change their prices and they will be seen to be helping out charities, which already are suffering from a fall in donations because of the credit crunch."

The HTA and GCA have both backed the idea.


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