Analysts attack Darling's pre-budget report

Technology firms and analysts have criticised chancellor of the exchequer Alistair Darling's Monday pre-budget report, which included a 2.5 percent VAT cut, from 1 December.

Analyst firm Butler Group on Tuesday said that Darling's decision to temporarily drop VAT from 17.5 percent to 15 percent for one year, affecting a wide range of goods, would "challenge" businesses, especially in terms of their financial-management systems and ERP applications.

"Conforming to the request is not going to be easy," said Angela Eager, senior Butler Group research analyst. "It is not just a matter of repricing goods on the shelves and point-of-sale systems. It means making, checking and testing changes throughout the entire inventory, the up and downstream supplier network, and in back-office systems and related processes, such as financials and 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."

The analyst said that having only one week to implement the changes in the run-up to Christmas would be especially challenging for retailers, as they normally have months to change their systems in the event of rate changes.

"Changes are generally implemented at a time when there are no other pressing requirements," said Eager. "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."

Business consultancy Ernst & Young agreed that implementing the VAT drop would pose a challenge for retailers, but said most small businesses would only have to make a slight change to invoicing.

"There are problems for retail businesses of all sizes [that are] to implement the changes in that time but, if you're a B2B putting VAT on an invoice, [it] is relatively straightforward," said Patrick Stevens, tax partner at Ernst & Young.

Darling's announcement of a year's deferral of a one-percent corporation-tax rise, from 21 to 22 percent, would not make a difference to small businesses, claimed Stevens.

"Who cares what the corporation tax rate is, if no-one's making any money?" said Stevens. "Deferring for a year is not enough time to make a difference."

Technology firm Salesforce.com said the government had not included in its announcement the financial incentives needed by companies wishing to train staff in using cloud-computing services. According to Salesforce.com, which has built its business model on software as a service, companies need tax breaks to train staff in using online services.

"It would make a degree of sense [for the government] to provide financial incentives through the tax structure to find ways for firms to survive and grow in these times," Woodson Martin, vice president of strategy for Salesforce.com, told ZDNet.co.uk on Tuesday. "Clearly, for small businesses to adapt to changes, they need agile systems and solutions. Cloud computing can help."