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New VAT rules that come into force on 1st January 2010 mean that the cost of offshoring IT development and other services will increase considerably. Banks and financial services organisations will be most affected by the new rules.

The new VAT rules are designed to affect all goods and services that are transacted across international borders. For banks and financial services organisations whose bulk of services have historically been VAT-free, the new VAT rules will push up costs. UK banks taking services from Indian and other offshore centres will find that they are required to pay 17.5% of the value of these services to HM Customs & Excise.

For Amatica, the financial services sector is an important market for its business solutions and services. Introduction of the new VAT rules on 1st January add further weight to the cost benefit argument for not offshoring overseas.

Commenting on the new ruling, David Roberts, Amatica's director who heads up the company's relationships in the financial services sector commented "There is lots of research that suggests that the argument for offshoring to the Indian sub-continent and elsewhere has become weaker. Offshoring costs have increased and there is the perennial concern over quality and the levels of programme and project support to manage offshore delivery.

"Having worked with clients who've offshored as well as IT development contracts that Amatica has won competitively from Indian sub-continent companies, Amatica has first hand experience of their weaknesses. It's possible that the new VAT rules will sound a further death-knell to the viability of offshoring."

For more information on the new HMRC rules on VAT, go to: www.hmrc.gov.uk/VAT

© Amatica 18/12/2009