Why is there no vat on some bt charges?

icanbefound

bt charge a £30 cease charge if you want to cancel your broadband connection. It used to have vat on it but now does not

They say that this charge is compensatory and is not subject to VAT.
@productsandservices.bt.com/consumerProducts/dynamicmodules/pagecontentfooter/pageContentFooterPopup.jsp?pagecontentfooter_popupid=26823&s_cid=con_FURL_ceasecharge

They use a similar statement in their terms and conditions for home phones

A charge of £2.00 per month / £6.00 per quarter applies if you do not make the required number of calls. This charge is compensatory and is not subject to VAT. Charges will appear in the one-off charges section of your bill.

@.productsandservices.bt.com/consumerProducts/dynamicmodules/pagecontentfooter/pageContentFooterPopup.jsp?pagecontentfooter_popupid=24641&s_cid=con_FURL_calls_offerterms

Can anybody tell me on what principle of vat is bt able to not apply VAT charges particularly for the cease charge?

I put @ for http//www, as a new poster I an not allowed to put links in

JasonLVC

In simple terms, for VAT to be applied there needs to be a supply of a service or goods (by the supplier) and a payment (by the customer).

So, where you cancel a contract then you are not paying for a sevice (becuase you aren't getting it anymore) and so your payment becomes compensation or a penalty for the breach of contract and the compensation/penalty is usually whatever number of months left of your contract or a set amount.

Just to recap, no VAT applies because you are not paying for a service or for goods, you are paying compensation to BT for failing to remain in contract. Compensation is not subject to VAT as you are not getting anything in return for your payment.

Link below from HMRC. The word "consideration" is VAT speak for "money/payment"

http://www.hmrc.gov.uk/manuals/vatscmanual/vatsc35000.htm

icanbefound

JaconLvc thank you for responce

bt say they have to pay btopenreach to replace equipment and rearrange records for the cease charge

Ofcom say this about the the cease charge

7.'Cease' charges

If a customer decides to cancel a broadband service (and doesn't plan to switch to a new company which also uses BT's network) they may receive a 'cease' charge. This even applies if they have completed their contract. The company is passing on a charge which it has to pay, to BT Openreach.


Ofcom's final guidance is that a cease charge is probably fair, provided:

• the charge is made clear to customers before they sign on the line;
  and
• it's based only on the actual costs that come with ceasing a service.

Ofcom think that some kind of work has to be done that can be accounted for. I dont think whether you are in contract or not is involved for the ceasce charge for terminating your broadband. Its about what bt has to get somebody to do to cease the contract at the exchange or somewhere like pull some plug. I imagin that this would be a service and that it would be subject to VAT. (between openreach and bt and then the customer)

I am still trying to fathom the not using up your required number of callls situation =-could it be something to do with withdrawing a booking charge.

Ectophile

I would argue that the reason it's not VAT chargeable is that you receive nothing in return for the charge.

Even if Openreach levy a charge for terminating the line, there wouldn't be any VAT on it because BT is such a huge company that they will be VAT registered. VAT registered companies don't have to pay VAT on things they buy.

icanbefound

thanks Ectophile for your responce. Being charged for nothing seems a little harsh. Ofcom say that the charge should be based only on the actual costs that come with ceasing the service. I would have though that openworld would charge vat for its service and bt would pass that on with vat to me. Vat registered companies do have to pay vat, it is just that they can deduct it form the vat that they charge to their customers and pay the difference to the vat man.