Confused about VAT rise to 20%

Monetmonetmonet

I have a question and o2 don't seem to have no clue.

I signed an o2 contract on a smart phone for 24 months at £25.00 back in June 2010. As the phone to buy is almost £500 upfront it can be assumed the deal I signed was for a free phone but then through a deal consisiting of paying for the phone and including line rental I get them both over a 24 month period for a fixed £25.00 a month.

Here is my question, as part of that £25.00 a month includes paying for the phone, which I purchased back in June 2010 when VAT was 17.5%, why should I now pay VAT at 20% for the whole £25.00, surely I should only pay 20% on part of the £25.00 which covers the line rental, the hire purchaes on the phone should remain at VAT 17.5% when I bought it.

Does anyone know how this should work, It may well be o2 are going to be hitting millions of contracts with this 2.5% rise where in fact they cannot do so.

zorber

Monetmonetmonet wrote: »

I have a question and o2 don't seem to have no clue.

I signed an o2 contract on a smart phone for 24 months at £25.00 back in June 2010. As the phone to buy is almost £500 upfront it can be assumed the deal I signed was for a free phone but then through a deal consisiting of paying for the phone and including line rental I get them both over a 24 month period for a fixed £25.00 a month.

Here is my question, as part of that £25.00 a month includes paying for the phone, which I purchased back in June 2010 when VAT was 17.5%, why should I now pay VAT at 20% for the whole £25.00, surely I should only pay 20% on part of the £25.00 which covers the line rental, the hire purchaes on the phone should remain at VAT 17.5% when I bought it.

Does anyone know how this should work, It may well be o2 are going to be hitting millions of contracts with this 2.5% rise where in fact they cannot do so.

But you havent bought it have you. You've agreed to pay £25 per month for both your phone and line contract. The vat on this goes up and you will have to pay an extra 2.5%.

if you paid out right for either you phone or your contract then you would get this at 17.5% vat.

example, i put a deposit down now on a caravan but i dont pay and collect the caravan till february the price will have to go up due to the vat rise. If i pay up front before the end of december then i would pay vat @17.5%.

Nothing to do with o2 it the goverment.

Monetmonetmonet

I'm not sure thats true, I'll explain with another example

I buy a TV for £100, I can't afford it up front so agree £11 for 10 months. This ties me into a deal whereby I promise to pay the seller £110 using his loan terms, in this arrangement I pay the VAT at the time and point of sale. If he includes a TV license deal and changes me an extra £10 a month , then that makes £21 I pay per month. If now the TV licence is tied to VAT when calculated, only the £10 license is affected by the VAT rise not the repayement on the loan for the TV.

I can see this forum is not the please to take up this case.:o, this may affect millions of o2 contracts.

scottishblondie

I'm not sure that a phone contract works the same way as a simple transaction of buying a TV on HP. There you are paying for one thing and agreeing to split it into smaller sections over time.

As I understand it a contract for a service is different. Also on a phone contract I believe an included phone is classified as a "gift" or something, and the ongoing payments are for the service you are receiving only and not the phone. This comes up often when a phone is broken etc and the person thinks they should receive a new phone or a repair as they are paying for it as part of their contract - except they aren't.

As an example, I got a new broadband contract during the period when VAT was 15%, when it went back to 17.5% the price I pay monthly for the service has gone up accordingly. The price you are told for the contract included VAT at the current rate, but the contract is actually £21.28 + £3.72 in VAT, but if the rate of VAT changes then so will the amount of VAT you have to pay. I would estimate that your contract will now cost £21.28 + £4.25 in VAT, so £25.53.

Have o2 actually told you that they are changing the amount they are charging you?

scottishblondie

I've just looked at my own mobile phone bill and it clearly shows the charge for VAT as a separate charge, stating it's at current rate of VAT of 17.5%. AFAIK anyone providing a service on which VAT is payable is perfectly allowed to charge VAT at the current rate, so I would expect most contracts will go up a bit in the new year to take account of this. It's probably included somewhere in the small print of your contract.

JasonLVC

A mobile phone contract is a supply of services, not a supply of goods. The VAT treatment for services is different to goods. So the TV example is unfortunatley not appropriate.

If you had bought the phone at the start, you'd have been charged 17.5% on the full retail price of the phone becuase you were buying goods, you then insert a sim which is a supply of services.

But you didn't buy the phone on its own, you bought it as a package of phone and airtime. There is a single supply here but is it for a phone or for airtime?. The legislation points to this being a supply of services becuase without airtime, you'll have an expensive paperweight.

Having concluded it is a supply of services, the tax point (which determines the VAT rate) will be at the time each payment is made, thus if you pay monthly, the tax point will be each month (not just the start of the contract) and therefore as we move into 2011, the tax point will change each month and thus VAT at 20% will apply.

This is exactly the same as a SKY contract, you receive a service (albeit through a Sky+ box) and are billed monthly, hence VAT goes up from January 2011 on the subscription paid. Same also goes for anyone who has a contract hire car, gym memberships, etc.

I trust that helps clarify the situation.

Monetmonetmonet

Thanks for the feedback, the deal however did quote 25 per month for 24 months, it was assumed fixed, VAT was not mentioned in the shop when I signed the deal or when it was advertised, maybe it should have said this.

£21.27 per month including VAT @ 17.5%.

The other issue, if the phone is a gift then why does a 12 month deal limit you to a £200 phone but a 24 month deal gives you a £500 phone, isn't this clear an element of the cost is paying for the phone and it is not actually free.

JasonLVC

Monetmonetmonet wrote: »

Thanks for the feedback, the deal however did quote 25 per month for 24 months, it was assumed fixed, VAT was not mentioned in the shop when I signed the deal or when it was advertised, maybe it should have said this.

£21.27 per month including VAT @ 17.5%.

The other issue, if the phone is a gift then why does a 12 month deal limit you to a £200 phone but a 24 month deal gives you a £500 phone, isn't this clear an element of the cost is paying for the phone and it is not actually free.

The general rule is that retailers should quote prices as VAT inclusive, which is why you were quoted £25, not £21.27 + VAT. The reality is that you do have a fixed price contract. The price is £21.27 but the VAT isn't under the control of the supplier so they haven't breached any contract as you will still be billed £21.27 + VAT per month as you were before.

Your only get out is if you have a written contract that categorically states that the £25 is fixed regardless of fluctuations in VAT rates - but I doubt any such contract would exist.

As for the gift thing, I think you'll find the increase in handset price is more to do with how long you'll be a customer for (and thus they can get back the cost of the subsidised/free handset by tieing you into a long contract).

Its a bit like interest free credit at DFS. No such thing. The sofa's are priced higher than they are worth to factor in the 'free' 4 years loan DFS give their customers. Try buying a DFS sofa for cash and see if they'll give you a discount, not a chance.

Chinkle

Reckon you are flogging a dead horse there OP. Otherwise this would apply to millions of us.

Also it would have meant that when the VAT was reduced a couple of years ago the phone companies would have used this as an excuse not to pass on the full VAT reduction.