Small businesses must balance the cost of changing all their prices with the cost of absorbing the VAT increase when the rate reverts to 17.5% at the beginning of 2010, a legal expert has warned.

Nigel Smith, professional support lawyer at law firm Charles Russell, told BAD News: "The decision whether to change the VAT rate on products is a commercial issue for retail businesses and businesses have got to balance it. They need to think whether it is too complicated, do they want to change the rate in the middle of their January sales or absorb the cost? For retailers it could be a real nightmare, having to change the prices on physical products as well as on their till systems."

He added that some large retailers have announced they have decided to forego changing their prices until the end of January. He said: "For example, in the press John Lewis has announced that it will not change its prices until after its sales and just absorb the tax increase."

His comments come after the Government consulted on extending the 14-day deadline for retailers to change their prices after the VAT reversion. The Department for Business, Innovation and Skills (BIS) proposes amending the Price Marking Order 2004, to extend the deadline to 28 days, which would allow traders to display a general notice related to prices and give them more time to change price tickets and labels for goods.

The standard rate of VAT is due to revert to 17.5% from 15% on 1 January 2010.

HM Revenue & Customs (HMRC) has more information on the VAT reversion at:
http://www.hmrc.gov.uk/VAT/forms-rates/rates/rate-rise-guidance.pdf

For more information on the Government consultation go to:
http://www.berr.gov.uk/consultations/page53298.html

To read more on John Lewis' decision to delay the increase go to:
http://www.drapersonline.com/news/multiples/news/john-lewis-to-delay-vat-increase/5007944.article