A very quick question re; VAT and termination

grumbler

Altarf wrote: »

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

No need to be rude as I said 'some'.
And I am no expert, but I don't think that companies pay VAT just for supplying the services regardless of receiving the money for the services they supplied.

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.

If it were that simple, i.e. just about wording, it would be far too easy to avoid paying VAT in practice just by charging small price for services and hiding a big part of the price in some artificial fees/charges for some non-essential breaking.

TrickyDicky101

I'm not a VAT expert but I am an accountant who in a previous life dealt with relatively complex VAT matters for my employer. I can see no reason why VAT would not be chargeable on termination of a mobile phone contract - as far as I know it would always be chargeable.

Altarf

grumbler wrote: »

No need to be rude

It wasn't meant to be rude. It was just a comment that what you had posted was wrong. Completely wrong.

grumbler wrote: »

as I said 'some'.

The bit that you got wrong was "It's not necessarily has to be money for real services."

For VAT to be chargeable it has to either be for the supply of goods or services (VATA 94 s4). No "real" supply of services, would mean no VAT.

grumbler wrote: »

And I am no expert,

So you are just commenting on the way that you think that VAT works. That is very bold of you.

grumbler wrote: »

but I don't think that companies pay VAT just for supplying the services regardless of receiving the money for the services they supplied.

And again not being rude, but you seem to have changed your mind, that it doesn't necessarily have to be "real services." It does (or a supply of goods).

And they may have to pay the VAT on services, even if they geve them away for no consideration (SI 1993/1507).

grumbler wrote: »

If it were that simple, i.e. just about wording, it would be far to easy to avoid paying VAT in practice just buy charging small price for services and hiding a big part of the price in some artificial fees/charges for some non-essential breaking.

Yes that has been tried, and failed. Several times.

TrickyDicky101 wrote: »

I'm not a VAT expert but I am an accountant who in a previous life dealt with relatively complex VAT matters for my employer. I can see no reason why VAT would not be chargeable on termination of a mobile phone contract - as far as I know it would always be chargeable.

As I mentioned before, for VAT to be chargeable there has to have been something supplied, not just money changing hands.

The concept of charging for allowing for early termination (which would be subject to VAT as the company is providing the service of allowing something to happen, which would not be allowed to happen without the payment), and not allowing for early termination but setting out the compensation payable (which is not subject to VAT), can be found in other types of businesses, usually involving leases.

Techhead_2

TrickyDicky101 wrote: »

I'm not a VAT expert but I am an accountant who in a previous life dealt with relatively complex VAT matters for my employer. I can see no reason why VAT would not be chargeable on termination of a mobile phone contract - as far as I know it would always be chargeable.

Indeed.

To be honest, this whole VAT issue is one of the urban myths that plague these forums (along with 30days notice/PAC band the secret European two year rule ). The situation is quite clear if you look on the Ofcom site about the rules on early termination fees.

The network must calculate (revenue lost) - (amount they can recover by selling the services on to someone else) + (the cost of acquiring a new customer) . To a maximum of what the customer would have paid to the network.

As the cost of obtaining a new customer is high (due to subsudised handset, commission etc) then the amount due is almost always at the cap.

Although I understand, Vodafone will offer a discount.

redux

There are some types of goods and services which are exempt from VAT, such as food, some services provided by some sports clubs owned by their members, and so on.

As far as I know, mobile phone companies do not trade in such products.

The fee for ending a contract early is still a notice fee in lieu of the services that were contracted to be provided, so I see no reason for VAT exemption.

xman

Ann_S wrote: »

You do not pay VAT on early termination charges because you will not be receiving a service.

I agree with this, this happened to me when I early cancelled my 3uk contract a some 4 years ago and again when I left o2 a couple of years ago.

In both occations what I was told by Customer services turned to be different to what I was actually billed - but I didnt complain as it wored out in my favour

daleski75

I have cancelled a few contracts over the years and I think O2 was the only one where I had to pay the VAT as well.

narika

have just cancelled a contract with Orange, they did NOT charge me vat on ETF.

greigster

I have just cancelled my o2 contract early and I have been charged VAT.

Having read the previous posts, it is clear that many people have different opinions, but surely there must be a definitive answer. Why should some companies charge and others not?

corinne14470

Taking into all the above: My husband has a £30pcm contract for a further 1 year and will be contacting o2 to lower the monthly amount in the first instance BUT, in my VAT naivety, if we are living in OZ within a week of cancellation for the months remaining why should I pay VAT? I realise I may have to - I just thought of this (opportunist!)...eg I could buy a freezer here, take it abroad and have it VAT exempt???