Mobile companies guilty of early VAT rise

28 January 2011

Mobile phone companies are ripping of customers by charging 20% VAT on calls made before the rate rise, to uSwitch has revealed.

Orange, Three, T-Mobile and Virgin Media are among the networks charging customers 20% VAT on December calls - despite the VAT hike not kicking in until January.

Mobile phone users who exceed their monthly allowance will be hardest hit. Price plans are charged in advance so December calls and texts within the allowance should be priced at 17.5% VAT.

However, calls and texts made outside the monthly allowance could be charged at the new rate if bills were issued after 4 January.

Ernest Doku, communications expert at uSwitch, says: "The bizarre thing is the phone firms are not going to make any extra money from this situation - it all goes to the HM Revenue & Customs (HMRC).

Lazy billing

"This is lazy billing and customers are bearing the brunt of it while the taxman is rubbing his hands with glee. The post-VAT price rises that providers have introduced may not seem like much, but the incremental hikes on essential services like call waiting and voicemail can really add up.

The HMRC states “where a service commences before 4 January 2011 and is still in progress on or after that date, the normal rule is that where an invoice is issued or a payment received on or after 4 January, VAT is due at 20%.”

However, if this is a continuous supply for example in the case with a phone contract, businesses may choose to account for VAT at the 17.5% VAT rate on that part of the supply made before 4 January 2011. They must “clearly demonstrate that the the proportion between the two amounts accurately reflects the services received in each period.”

It says the same rules applied when the VAT rate was temporarily cut to 15% in 2008, and reverted to 17.5% on 1 January 2010.

But Doku says customers should take the matter into their own hands. "We advise customers to take a closer look at their phone bills this month. If they think they've been unfairly charged they should contact their provider and ask for a refund."

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