H&M pay VAT increase themselves - on prices they didn't decrease

6 January 2010

In the final days of 2009, we suggested you keep an eye on high street retailers and note how they reacted to the 1st January VAT increase. We suspected many retailers would absorb the increase themselves and crow about the fact to drum up sales. But would any retailer dare say they were absorbing the price increase for the customer's benefit when they didn't reduce them in the first place? They'd probably get away with it too; after all, it's 14 months since VAT was reduced - nobody would remember whether a high-profile retailer cut their prices in the first place, would they?

Turns out they would, actually.

Initially, high-street fashionmeisters H&M reduced their prices when VAT was cut in December 2008. It didn't last though, according to a memo faxed to all branches at the time. For the first couple of months, the cost of items was manually reduced when customers paid at the till - an entirely common practise at the time. H&M then decided to stop passing on the discount and continue charging full price:

Biterwallet - H&M VAT decrease 2008 small #1

Biterwallet - H&M VAT decrease 2008 small #2

The full memo is here. In other words, H&M stopped reducing their prices and told customers they could still receive the savings, but only if they spent their money on the promotional offers specified by H&M.

Flash forward to January 2010, and VAT returned to 17.5 per cent. This memo was sent by H&M's press office this week - you can see the full page here:

Bitterwallet - H&M VAT increase small #1

Should customers ask about the VAT increase, H&M staff have been told to say that H&M is bearing the cost themselves. The truth of the matter is that it's the customers who have been bearing the cost on H&M's behalf since last January. H&M wasn't the only retailer to stop passing on the VAT savings shortly after they were cut - Homebase did exactly the same thing - and it's entirely likely the the price of goods would have risen by a similar amount regardless. None of that is the point. The point is that profiteering by telling customers you're doing them a favour, when in fact you've done no such thing, is hardly the right way to go about business.


  • dunfyboy
    Didn't I point out stores would be doing this the last time BW made a VAT post?
  • cheesewax
    did you? did you prove it? just talk then, eh?
  • Jerome
    The only time I have ever seen the 2.5% deducted was a couple of months ago, at the shop in the Natural History Museum. Other than that, the prices in every shop I saw still ended in a nice round 99 pence, so I just assumed everyone was shafting us. I wasn't vastly surprised.
  • Nigel
    It was more B2B transactions where VAT is calculated separately where savings were passed on. Bigger companies are all evil ;)
  • shallow t.
    Blockbuster video done something similar, they decreased the vat for about a week, then like sheep noticed other stores didn't decrease their prices so put them back up again. Then come January they sent out a store email saying they were increasing the prices because the VAT went up???
  • Burningfeetman
    I think in fairness, some companies did pass on the savings, vodafone for example. But yes i think ur right, we all got shafted by the retailers !
  • dp
    Erm, confused. They stopped passing on the decrease at the end of January, which was pretty clear to all customers at the time since till transactions were no longer adjusted. So they had a year where they were paying the 15% to HMRC. Then, as of 1st Jan, they had to start paying 17.5% to HMRC. They did not increase their prices. Therefore their margins suffered. Really, you should have been moaning about this in January LAST YEAR, not today. In any case, retailers can charge what they want, and nobody forces you to buy from them. They never really lied and its not like there isn't lots of competition in the clothing market.
  • cheapskate
    M&S made their VAT adjustment at the checkout and never altered their shelf prices.
  • Gadget f.
    @dp - they had a year of 15% to HMRC in accordance with a VAT decrease which was intended to benefit consumers, but instead benefited them. Their margins have suffered only because they were boosted last year by this. So yes technically they can say they have absorbed the VAT increase, but that's rather disengenuous in the circumstances wouldn't you say?
  • Felts
    How this in legal terms. They should be charging us 15% vat but were charging us 17.5%. suppose they will just say they charge us 15% but the per tax price was increased. Like Jermoe said all the prices ending in 99 pence didn't all of a sudden get relabeled 97 pence.
  • G U.
    When VAT was 17.5%, customers were charged 17.5% and when VAT was 15% customers were charged 15%. Shops were under no obligation to change prices. They legally have to charge the current VAT rate so any shops that did this were effectively putting up their prices. November 2008 - Shop sells item for £10 - shop gives £1.49 (17.5%) to HMRC and keeps £8.51. VAT decreases to 15%. Shop decides to maintain prices. December 2008 - Shop continues to sell item for £10 - shop gives £1.30 (15%) to HMRC and keeps £8.70. Shops that decided not to decrease prices obviously did quite well as they increased their margins. Some would argue that this was good for the business - especially small businesses. The VAT decrease had more of an effect on larger purchases like cars where substantial savings could be made by the general public at no extra cost to the car traders. Cars could be offered with potentially hundreds of pounds off making them a more attractive offering to the public and helping to boost sales. A win for both businesses and the public.
  • vanilla i.
    Think what the person said above is what the vat reduction was basically ment to do. Im sure it was so that the companys could keep there prices the same and make more profit from giving less to the goverment (this way less companys would go bust and would save peoples jobs)
  • Nobby
    @Vanilla Ice, yes I agree. That was the point of the vat reduction. I never really had a problem with companies keeping the £x.99 prices. I found it a real faff in M&S when they were manually adjusting each sale to ave each person 50p or so, ignoring the length of the queues building up due to the extra processing time.
  • Ten B.
    [...] H&M get a bit frisky with the January 1st VAT increase – they never knocked it off in the first place! [...]
  • Which B.
    [...] For example, when VAT was lowered to 15%, H&M manually passed on the discount for a couple of months before continuing to charge at the higher rate of 17.5%. When VAT was increased back to 17.5% at the beginning of 2010, H&M told customers their prices would not increase and that H&M would pay the difference themselves – even though they were already charging customers 17.5%. [...]
  • VAT B.
    [...] One retailer has decided to do right by the customers – H&M. We went to town on them last year, when VAT was lowered to 15%; H&M manually passed on the discount for a couple of months but then continued to charge at the higher rate of 17.5%. When VAT was increased back to 17.5% at the beginning of 2010, H&M told customers their prices would not increase and that H&M would pay the difference themselves – even though they were already charging customers the full 17.5%. [...]

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