In a move projected to strengthen the UK economy, the Chancellor has this afternoon announced that the standard rate of VAT (Value Added Tax) will be cut from the 1st of December 2008 for 13 months. The previous rate of 17.5% has been cut to 15% to encourage consumer spending and stimulate demand.

While it should have this effect, it has also been labelled a ‘retailer nightmare’ as thousands of shops up-and-down the country are faced with re-labelling their products. Luckily for an e-commerce store, this process can be as simple as flicking a switch

Most stores have a setting for VAT which can be easily changed via an administration area giving a considerable advantage over offline retailers.  Not that this is all plain-sailing however; you will still need to check that your pricing is consistent if you do have an offline presence such as a mail-order catalogue or store.

Whether this will indeed result in more custom is a matter of conjecture. If your standard product retails at say £100 including VAT then a customer will save about £2.23 if the full saving is passed on to the customer, hardly enough to make them buy a few more.  It also seems likely that many retailers will elect to ‘absorb’ these savings into prices. Also, if your customers are mainly businesses with balanced outgoings then the VAT change is largely neutral.

Either way in what was expected to be a good Christmas for online businesses, despite the Credit Crunch any additional stimulus can only be a good thing – just make sure you save a little back for when taxes go back up in the near future…