A very quick question re; VAT and termination

nsabournemouth

Can someone clear up if i have to pay VAT when terminating a contract early? O2 say i do, are they correct?

Annie._2

You do not pay VAT on early termination charges because you will not be receiving a service. You should also receive a small discount on early termination charges.

Wintermute

Yes, they're correct. If you cancel an account with O2 in contract you'll pay months remaining * tariff including VAT (and excluding any loyalty discount etc.).

grumbler

Many times I've heard here that you don't pay VAT, but I have never seen any proofs or a reference to any legal documents saying this.
I am no expert, but I don't see any reasons for VAT to be paid by companies on money received for services and not to be paid on money received as fees.

simax

O2 charge VAT, Vodafone and Orange do not. Dunno about the others.

Wintermute

grumbler wrote: »

Many times I've heard here that you don't pay VAT, but I have never seen any proofs or a reference to any legal documents saying this.
I am no expert, but I don't see any reasons for VAT to be paid by companies on money received for services and not to be paid on money received as fees.

My understanding of it is that O2 just ask you to pay what you originally committed to paying, but some other operators actually have a charge for terminating the contract early and that's not subject to VAT, but I may be way off there.


From http://stakeholders.ofcom.org.uk/consultations/addcharges/faq ;

11. Ive had to cancel my service whilst in contract for reasons out of my control, should I have to pay a charge for this?
In many cases, it is likely that early termination charges will still be payable, though they should be set at a fair level following our guidance.
This is because when consumers enter into contracts with suppliers they make certain commitments. Occasionally, there may be circumstances in which consumers are unable to fulfill those commitments, and they may need to terminate a contract before the minimum period has elapsed. If the contract and any early termination charges are fair, the supplier may insist on consumers fulfilling their commitments or paying the charges.
This does, of course, work both ways. If the supplier is unable to fulfill its own commitments, it may be required to pay compensation to consumers.
If you think there are special circumstances in your case, it is always worth discussing this with your supplier.

grumbler

Wintermute wrote: »

...some other operators actually have a charge for terminating the contract early and that's not subject to VAT

Again, I am no expert, but I don't see any reasons for charges (fees, etc. - whatever they call them) not to be subject to VAT.

Toe-Jam

I am just about to approach O2 to cancel my contract early, I wonder if this has become any clearer.

Personally I don't see why they should be charging VAT on a termination.

VAT is a third party charge for services that is out of O2's control and your agreement is to pay them the price of your tariff. They should not be entitled to keep the service charges when they are not actually providing the service.

Similarly a customer cannot say, well VAT was 17.5% when i took out my contract, so now you can't charge me 20%, because it is something O2 collect on behalf of someone else.

grumbler

Toe-Jam wrote: »

I am just about to approach O2 to cancel my contract early, I wonder if this has become any clearer.

I think this become less clear: Paying off contract early....

Personally I don't see why they should be charging VAT on a termination.

VAT is a third party charge for services that is out of O2's control and your agreement is to pay them the price of your tariff.

VAT is the tax the government charge on some money the company receives from customers. It's not necessarily has to be money for real services. If government charge VAT on ETC, than there is no reason for the company not to charge you.

They should not be entitled to keep the service charges when they are not actually providing the service.

If you think that the contract that you signed with the company is unfair you can challenge them in court.

Wintermute

Toe-Jam wrote: »

I am just about to approach O2 to cancel my contract early, I wonder if this has become any clearer.

Personally I don't see why they should be charging VAT on a termination.

VAT is a third party charge for services that is out of O2's control and your agreement is to pay them the price of your tariff. They should not be entitled to keep the service charges when they are not actually providing the service.

Similarly a customer cannot say, well VAT was 17.5% when i took out my contract, so now you can't charge me 20%, because it is something O2 collect on behalf of someone else.

O2 still charge VAT when it comes to term fees, you can try to challenge them in writing or in court over it, but they normally charge VAT and I've never known them not to.

Altarf

grumbler wrote: »

VAT is the tax the government charge on some money the company receives from customers. It's not necessarily has to be money for real services.

Utter tosh. VAT is only due on goods or services supplied , not just on money paid.

The reason for the difference between why some charge VAT and others don't is probably due to the wording in the termination clause.

If the company says "you may terminate your contract X months early, but if you do then we will charge you £Y", then VAT is due, as they are supplying you with the service of allowing you to break your contract early.

However if they say "you may not terminate your contract early, but if you do then we will charge you £Y for breaking the contract", then VAT is not due as they have not supplied you with anything, you are just paying them compensation.