Phone firms early to ring in VAT at 20%

Mobile and landline customers are scrutinising the VAT breakdown on their phone bills to examine whether they are being charged the old, lower rate of 17.5%, the current rate - or both.

Price comparison website uswitch said phone firms including Orange and T-Mobile billed customers with VAT at 20% in December, even for calls and texts made before the higher rate come into force.

Virgin and Three did the same, charging all calls and texts made in the last billing period at the 20 per cent VAT rate, which only took effect from January 4th, unless they were pre-paid.

“The bizarre thing is the phone firms are not going to make any extra money from this situation – it all goes to Her Majesty’s Revenue & Customs.

“This is lazy billing and customers are bearing the brunt of it while the tax man is rubbing his hands with glee,” said uswitch’s communications boss Ernest Doku.

However under the VAT framework, companies that provide a continuous supply of services can choose to calculate VAT at the time of billing, rather than when the services were supplied.

So Orange, T-Mobile, Virgin and Three customers are not entitled to a refund, in spite of TalkTalk, BT and O2 charging their subscribers the lower VAT rate (on calls before January 4th).

Sky and Vodafone also chose to split customer bills, applying the 17.5% rate to all calls and texts provided up to January 3rd, followed by the 20% rate for services after that date.

Uswitch said: “A lack of strict guidance from the Revenue means phone companies are not breaking any rules by charging 20% VAT on phone usage prior to January 4th, [but] the move may be a bitter pill to swallow for the millions of consumers coping with higher bills this year.”

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