The UK Chancellor Alistair Darling has announced that VAT is to be cut from 17.5% to 15% from December 1, 2008 until December 31, 2009, and has urged retailers to pass this reduction on as soon as possible. This gives the most agile businesses around seven days to make the change if they aim to abide by the Chancellor’s wishes.
Conforming to the request is not going to be easy, as it is not just a matter of re-pricing goods on the shelves and point of sale systems. Rather, this means making, checking, and testing changes throughout the entire inventory, the up and downstream supplier network (catering for different change timelines of the various suppliers within the chain), and in back office systems and related processes such as financials and enterprise resource planning (ERP) systems. As a result, some retailers are expected to struggle and may not be able to think about applying the reduction until next season’s goods arrive.
Of course, businesses are used to financial change and modern systems are designed to cope with rate changes – the days of hard coding rates (be it VAT, National Insurance Contributions, personal tax allowances and so on) have (mostly) passed. However, businesses usually have many months to prepare for budget-related changes, not just one week. Furthermore, changes are generally implemented at a time when there are no other pressing requirements. This VAT drop is being introduced in the run-up to the Christmas shopping frenzy, a time when businesses need to concentrate on handling volume transactions rather than altering their core systems.
Retailers have already identified the prime problem areas. UK financial systems supplier CODA reports that concerns center on four key issues. The change will override its traditional pre-Christmas systems lock-down, which is put in place to minimize risk during a key trading period; there will be time and costs associated with changing price tags; communicating price changes and setting a round number price point will be difficult; as will handling customer refunds.
The key message is that although changing the VAT rate from 17.5% to 15% within business systems is relatively easy, it has widespread implications inside the organization, across the supply chain, and for the customers. The change ripples out across business processes, potentially impacting the ability to transact, report, and respond to all of those ‘normal’ business exceptions.
However, the challenge could be highly educational. For the past few years one of the key strategic IT objectives has been to design and implement systems and processes that enable business agility. This short notice (and relatively short term) VAT rate change will be a good test of how effective these changes have been, highlighting areas that need further attention.
