Scholastic UK Limited VAT Update
1 Dec 2008
What is Scholastic’s policy on revising prices in the light of the reduction in the standard rate of VAT after the 1st December 2008?
In common with many other publishers, Scholastic has chosen not to revise downwards the retail price of its product (educational and children’s), or to revise the cost of product sold in a retail context through Scholastic’s clubs and fairs.
The vast majority of product sold by Scholastic is zero-rated (i.e. does not attract VAT). A small proportion of our range (estimated to be less than 3%) is fully VATable at the standard rate of 17.5%, and the effort required to reprice these products does not match the benefit that would be available to our customers or the end consumer. A further small proportion of our range contains items with a mixed rate element. In these instances, the reduction in retail price is even more slight. An example for a mixed rate item in our Klutz range, which retails at £12.99, illustrates that the VAT saving is £0.11.
Much of our product is pre-priced, and it is impractical for us to amend all of the pricing on all of the products in our warehouse, or adjust catalogues, stock lists or order forms.
In addition, all of the product brought in from 3rd party publishers and packagers (where quoted to us on the basis of retail price) reflects the previous VAT rate of 17.5% where applicable. This applies to all supplies up to 28th November 2008, and forms the bulk of product intended for supply in the coming months. We have had no indication from our suppliers of VATable product that they will themselves be reducing the selling price of the product sold to Scholastic.
We acknowledge the government’s stated desire that the VAT savings be passed on to consumers. However, the costs of making this amendment would also have to be passed onto our customers and ultimately consumers. It is our belief that such costs would be higher than the savings flowing from such a change. It is also our belief that the level of savings available on our product with low price points is sufficiently small as to have no impact on consumer behaviour.
What is the impact on net prices (i.e price before VAT)?
As a result, the net price of a small percentage of our product will increase with effect from 1st December. This applies to all of our customers, and has particular significance for our customers outside of the UK, where VAT is not charged. In the UK, however, where the retailer then does not revise the overall price down, the retailer will clearly see an increase in their share of the remittance from the consumer (as the proportion passed to the government as VAT is lower), and hence retailers will themselves benefit from the reduction in VAT. However, this is likely to be negligible in virtually all instances, and therefore it is not possible to regard this as profiteering.
How does the VAT change impact pricing of product from January 2009?
Our product offering (and associated pricing) from 1st January 2009 reflects the constant review by Scholastic of the value of our products in the highly competitive markets in which we operate, together with the cost pressures inherent in the current economic climate (rising paper and utility costs, with increased risk of bad debt from corporate failure). This applies to our retail units, clubs and fairs, as well as the pricing of product in our children’s book division and our educational publishing.
Scholastic can confirm that it has updated all of its internal systems and websites to charge the correct rate of VAT on all of its products and services supplied with effect from 1st December 2008. Updated net prices are available on request.
How will Scholastic handle returns after 1st December 2008?
It is the responsibility of our customers to notify us of the rate of VAT applicable to any returns physically received by Scholastic after 1st December 2008. Where such notification is not received, at Scholastic’s discretion and in the absence of evidence to the contrary, the returns will be assumed to be associated with original sales transactions that occurred after the change in VAT rate, and therefore the new rate will be deemed to apply. This is because the industry’s existing returns procedure does not require attribution of returns to specific original sales transactions.
Will Scholastic continue to impose these higher net prices when the VAT rate reverts back to 17.5% as the government has indicated?
The government has indicated that the reduction in the standard rate of VAT is temporary in nature. Scholastic confirms that it will revert to those prices quoted before the VAT change when the rate reverts back to 17.5% (all other things being equal, and subject to Scholastic’s right to vary prices at any time in accordance with existing terms and conditions of sale).
SCHOLASTIC CONTACTS
All queries regarding the implementation of the VAT change should be referred to HM Revenue & Customs. All other queries should be directed through the normal contacts at Scholastic.
| Technical queries | Financial Controller, Janice Williscroft | 01926 816213 |
| Supply chain queries | Supply Chain Manager, Mike Seach | 01926 816206 |
| Commercial queries | Finance Director, Alan Hurcombe | 01926 816263 |
Entities covered
Scholastic Limited, trading as Scholastic Children’s Books, Scholastic Book Fairs Scholastic Education Publishing and Mary Glasgow Magazines, together with Scholastic Book Clubs Limited. Sales of titles published by Chicken House Publishing Limited (for which Scholastic Limited acts as agent) are also covered.