The pre-budget report, VAT and eBay

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eBay are looking at ways to enable the change in VAT from 17.5% to 15% without sellers having to cancel and relaunch their items. Currently it’s not possible to edit the VAT rate once a listing has sales or bids. Relisting would incur additional fees (and listing enhancement fees) along with loss of Recent Sales boosts in Best Match.

Changes to VAT were announced in yesterday’s Pre-Budget Report by the Chancellor Alistair Darling. In short the VAT rate will reduce from 17.5% to 15% from December 1st 2008 and will stay at the reduced rate for the whole of 2009. For 5% and 0% VATable products there is no change in rates.

How will this affect eBay buyers and sellers? Well for VAT registered sellers possibly the most important change is the VAT rate displayed on your listings. You’ll also have to change VAT rates in any accounting packages that you use.

For buyers there may be a small reduction in the cost of goods, but in all honesty many sellers are unlikely to make price cuts in any bar the most competitive categories. A £9.99 (inc 17.5% VAT) item today is unlikely to be listed for £9.78 (inc 15% VAT) on the 1st December and 21p is unlikely to sway buyers either. There is no legal obligation for sellers to pass on savings although the government would like to see sellers do so.

Do I have to pass on the VAT reduction to my customers by reducing my prices?
The Government is making this change as part of a broader package of fiscal measures to give the economy a boost. Passing on the tax reduction through reduced prices will stimulate consumer spending and mean that both businesses and consumers benefit from this change. But ultimately decisions on prices charged by business and paid by consumers, are for them rather than the Government.

There are some other changes sellers need to be aware of, such as changes to the VAT Flat Rate Scheme percentages. If you’re a VAT registered seller all the information you need is available from the HMRC Detailed Guide for Vat-Registered Businesses (opens in .pdf) which covers the VAT standard rate changes.

4 Responses

  1. Well I don’t know what all the fuss is about. I don’t think many punters will get too excited over a 2% discount – a £117.50 item will now be £115.00 – big deal!!!
    Remember, VAT PAID on stock up to and including 30th Nov will be claimed back at the old rate BUT you only have to pay HMRC 15% on sales – Happy days!!
    Trouble is – when it reverts back at the end of next year it would be a good idea to run stocks as low as possible to avoid getting stung when you have to pay VAT at 17.5% when you can only claim back 15% – ouch!!!

    I won’t be reducing prices as I already give a 10% discount of repeat business. Any VAT difference gain will go into a provision account for the change back next year to minimise the impact then.

    There are a couple of different circumstances for the different rate but I would imagine that all VAT businesses will have received the same letter I did and will be able to sort it quite simply

    For me, I just won’t show the VAT amount on eBay packing slips. If someone specifically requests a VAT invoice I will supply one with the correct VAT on it.

    This is my interpretation ie opinion, of the effects of the VAT change and should not be considered as financial advice.

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