Mobile firms charge 20% VAT for pre-rise calls

Phone users with some of the UK's major companies have been charged the higher VAT rate for calls made in December - but are not entitled to a refund, they have been warned.

Price comparison website uSwitch said customers of companies including Orange, Three, T-Mobile and Virgin Media have been charged the 20% VAT rate on all calls and texts in the latest billing period that were not pre-paid, including those made in December before the increase took effect.

However bills are proving a lottery for customers, with other companies including BT, O2, Sky, Vodafone and TalkTalk opting to charge the lower 17.5% rate on calls made before VAT increased on January 4.

The higher rate would hit those who exceeded their "free" allocation and those who made extra calls over the festive period, uSwitch said.

HM Revenue and Customs rules say companies who provide a continuous supply of service can calculate VAT at the time of billing, rather than when the calls were made, meaning customers will not be entitled to a refund.

However companies can choose to charge 17.5% on the services provided up to January 3 and 20% on the remainder.

All VAT charges must go to the Treasury, meaning companies do not profit from applying the higher rate ahead of January 4.

USwitch called the discrepancy "unfair".

It said some mobile networks had also taken the opportunity to introduce a series of price changes alongside the VAT increase, ranging from more expensive calls and texts to the removal of free voicemail and increased billing fees.

USwitch spokesman Ernest Doku said: "The bizarre thing is the phone firms are not going to make any extra money from this situation - it all goes to the Inland Revenue.

"This is lazy billing and customers are bearing the brunt of it while the tax man 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."

A Virgin Media spokesman said: "Whilst VAT is outside of Virgin Media's control, as a customer-focused home entertainment provider, in order to make these increases as manageable for our customers as possible, we have rounded down the VAT increases to the nearest penny.

"However whilst most services are billed in advance, for items that are billed in arrears, such as telephone calls, these items are charged at the prevailing VAT rate at the time of invoicing as per HMRC guidelines for continuous services."

T-Mobile, Orange and Three all offered to speak to any concerned customers.

A T-Mobile spokesman said: "The recent change in VAT only affects the parts of the bill which are outside of the customer's main tariff bundle, as the tariff bundle itself is paid in advance, and in this case at the lower rate of 17.5%.

"Additional services, such as those calls and texts that are made outside of the bundle, are billed at the end of the monthly cycle, and in this case at the new VAT rate of 20%. Only around 15% of our consumer contract customer base actually go out of bundle and use additional services.

"Whilst we don't feel that many people will be out of pocket with this, for those who feel they are, they should get in contact with us and we'll review their situation.

"T-Mobile has not profited from the change in VAT rates in any way."

Orange released exactly the same statement.

A Three spokesman said: "The minority of customers that went out of bundle in December will have been billed at the new VAT rate for that use. However, because call packages are paid in advance almost all customers are net beneficiaries as they will have paid the old VAT rate for their January call package.

"All VAT is passed straight to HMRC, not the operator.

"If contract customers are concerned about how VAT charges have been applied to their bill they should call our contact centre."