I feel really sorry for the guys who will have to rush put up the new signage outside the new stores on Monday. It's-a-nearly98pence, 98p-stretchers etc.

Seriously though, does anyone disagree that this is a simple recipe for instant 2.5% inflation for VATable goods on Monday, followed by a further 2.5% (or maybe more) next January? Or am I being too simplistic as usual?

Many commentators have noted that the change of VAT rate could cause a big administrative burden on businesses - and that goes far beyond IT issues.

But sticking to the narrow IT and accounting software issues, yes there is a significant point there, but I agree with David Turner that it is not the one originally stated by Dennis in AccMan. If it is true that 'on-premise vendors may need to issue patches' it must be doubtful whether the software was fit for purpose in the first place. Each VAT rate should be held on the system as a parameter which is under the control of each end-user. In other words, it is held in one single place in the system, so that the user just has to go to that one place to make the change and the system will then put the rate into all the relevant calculations. I have just checked the questionnaire for the Institute's software accreditation scheme and I see that the VAT questions are based on the assumption that this is the way VAT is handled. This is true regardless of whether the accounting system is 'online' or 'on-premise'.

The really serious point here relates to those businesses that do not use 'proper' accounting software. The last IT Faculty survey of IT in Business found about 6% of businesses using a spreadsheet for bookkeeping, and a further 3% using some other non-standard or 'home made' system. As you would expect, these are predominantly the smaller businesses, many of which would be least well equipped to cope. Many uncontrolled spreadsheet applications will have 17½% 'hard coded' in multiple places and it will be a nightmare to find and amend all those places. Businesses doing it that way run a real risk of getting their VAT wrong.

Even businesses that are using well-designed standard software products will need to make sure that they know exactly what to do to change their VAT rate in their accounting system. It ought to be simple to change one single figure but it is not always that straightforward. For example, you might end up changing the VAT rate for historical transactions instead of transactions from 1 December! The message, especially to smaller businesses who don't have a chartered accountant on staff, is: dust off your software manual now; and if in any doubt, consult your software supplier. Also consult your accountant, who in many cases will have set up the accounting system originally.

What's more, Sage for instance cannot possibly know how many customers it has because of its distribution business model. It leaves them at a terrible disadvantage unless they see it as an opportunity to get more maintenance/support fees.

That raises a very important side issue about perceived responsibility between client and professional. It's an unfortunate fact of practice life that clients always assume the professional will tell them what needs to be done when changes occur (and thereby assume a level of responsibility.)

Hah. £100 if you don't account for the operational disruption and time it will take to:

• Reorder pre-printed forms and stationery if used.
• Amend soft forms with fixed references to 17.5% in payment terms.
• Reverse partially or unfulfilled sales and purchase orders and re-enter if code changes are not dynamically updated with the table change.
• Recalling, re-issusing or amending advance invoices or contract orders.
• Adjusting prepayments, split-invoices, repeat invoices etc.
• Assess and amend bespoke modifications which involve VAT calculations.
• Accomodate an in-quarter VAT rate change in your VAT 100 report.
• And so on, and so forth...

Assuming the software can readily accomodate the code changes - which should be the case - the bulk of the workload is operational and potentially quite considerable in high transaction volume businesses.

FD's, MD's, IT Managers, COO's and thousands of accounts and operations staff are going to have a hard couple of weeks, for sure.

And all for no direct commercial benefit to them.

@stuart: less than £100 to implement.

sounds about right to me. Any admin costs for the change will be immediately recouped by the 2.5% increased revenue from not dropping the prices ;-)

Thanks for posting that fascinating insight into Government decision making Philip - best laugh I've had in a long time.

We have assumed a range of between half an hour for a small business with the simplest VAT affairs to three hours for a large business (large businesses may also want to consult advisors). Using hourly rates informed by the Standard Cost Model, the estimated cost for a typical small business is around £7 and for a larger business might be around £100.

So the Government's "Standard Cost Model" assumes that the business owner is paid £14 an hour - have they never phoned a plumber??? Also assuming that only one person in the large business needs to know...

It is also recognised that businesses will need to consider whether to reprint or reproduce published material such as catalogues. .... We recognise this is a potential additional cost but because of the uncertainty have not built this into our costing.

I'm uncertain how much that new Ferrari will cost, so I'll put it in the monthly family budget as zero ;-)

In terms of time costs, it is assumed that smaller businesses might take one hour and larger businesses with more complex systems might take around fifty hours; the estimated costs per business in relation to time are around £13 and £325 for the small and large businesses respectively.

no doubt working on the assumption that the IT consultant you bring in to fix things are paid just above the minimum wage.

Unbelievable!

At the time, it was a complete nightmare - taking our staff of 40+ the best part of a week to complete but, it was of course essential and had to be done. The change came shortly before a new season started, which was handy - when the new season started a few weeks later, all new stock came in with the updated prices on the tickets.

Just reminiscing with Stuart now brought a smile to my face!

To be fair to HMRC there is advice which suggests they do understand the pressures businesses face, for example with errors with post-VAT reduction returns:

"Just correct them in the normal way - make a voluntary disclosure or correct it on your next return (subject to the normal limit).

"HMRC we will adopt a “light touch” in relation to errors or mistakes made in the first VAT return after the change. We want to help businesses get it right, not catch them out. So we’ll take into account the difficulties a business has faced in adjusting to the change."

Further information see HMRC's Question and Answers for Businesses (PDF 33K) or more generally there's the main HMRC website www.hmrc.gov.uk.

Go to Sage's homepage and they have really made the VAT change the unmissable content on it.  Xero with their blog and email newsletter get bonus points for dealing with the issue and making it a marketing opportunity at the same time, but drop points for no clear links on their website for the VAT change information.

Anyone else got good or bad experiences with the software provider?

In addition, I have seen posts from FreeAgent, CODA, e-conomic, Pearl Software.

Microsoft and NetSuite both contacted me privately.

All these sources are to be commended for providing what is, on the whole, excellent information geared towards their respective communities.

The result of the snap poll was a resounding 4 to 1 positive response as to whether the VAT changeover went smoothly.

Reinstating the first poll: Is the 2.5% cut in VAT more of a hinderance than a help to businesses?