VAT vexation raises retail quandary.

VAT reduction creates more harm than good for UK's hard-pressed retailers

By Robert Ashton

The Government's 2.5% tax cut has only succeeded in handing music retailing another tough challenge, just as the sector enters its most important sales period.

Chancellor Alistair Darling has temporarily cut the rate from 17.5% to 15% until December 31 next year in a bid to boost consumer confidence and help pull the economy out of the current economic doldrums.

The reduction works out at just 9p on a #4.99 CD and now retailers face the dilemma of spending thousands on advertising, IT changes and re- stickering to pass the savings on to their customers or increasing their margins by a tiny amount and taking the risk of being accused of being greedy.

HMV has decided to pass on the cut, although it is choosing not to re- sticker stock and will simply make the reduction at the till when the customer pays. A spokesman says, "We are pleased to confirm that the reduction in VAT to 15% will be passed on to customers at the point of purchase, and this will be communicated throughout the store and in our advertising.

"Although we are passing on the VAT reduction at the point of sale, the re-stickering of our entire stock would represent an enormous undertaking for our sales staff at this very busy time of year, so the prices shown on our product packaging will for the time being remain unchanged."