How much???

Salsasalsa

Is there a limit on how much mobile phone companies can charge you to come out of a contract? I pay £30 per month for two business mobiles, I have a year left to run but they said I would have to pay £424 for each phone to cancel? Is this legal?

Meadows

Well I am guessing you read the small print of the contract when signing up and @ £30 per month that is £360 for the year + admin per phone that you wish to cancel earlier than the contract you signed up for.

Buzby

Yes - it is a business contract and you agreed the commitment, why would you agree to an illegal contract? If you mean you are looking for a wag out of your binding commitment, just stop paying.

Court action is rare, so no CCJ's to worry about - and with the DCA chasing you to pay that's about it, assuming you don't care about the credit file.

macman

The ETC is simply the value left on the contract at the end of minimum term. No maximum. That puts the other party back where they would have been had you not broken the contract-which is presumably what you would expect if you were the one suffering breach of contract.

grumbler

In fact it's not that simple.
As was pointed out many times the ETC isn't subject to VAT and many (all?) networks clearly show this in the bills.
As a result, some networks that charge full 'value left' as ETC in fact benefit from contracts terminated early as they make extra profit by not providing services and at the same time not paying VAT on the ETC, unlike on normal payments.

MataNui

Grumbler: That was initially my understanding but has it been finally determined that the providers are not required to pay VAT on the ETC? I ask because if they DONT need to pat the VAT to HMRC then those providers that dont discount the VAT to the customer are not only benefiting but they are commiting VAT fraud in that they are charging VAT to the customer but are not passing it on the HMRC.

grumbler

MataNui wrote: »

Grumbler: That was initially my understanding but has it been finally determined that the providers are not required to pay VAT on the ETC?

I am no expert, but all people here that seem to know something about taxation say so.

I ask because if they DONT need to pat the VAT to HMRC then those providers that dont discount the VAT to the customer are not only benefiting but they are commiting VAT fraud in that they are charging VAT to the customer but are not passing it on the HMRC.

My understanding is that they do benefit, but don't commit any fraud because the full amount they charge doesn't include VAT.
It's a different question whether they are allowed to charge the ETC that big, but our teethless Ofcom fails to address this.

MataNui

I have never had to pay an ETC but my vodafone bill lists VAT as separate. I know vodafone dont charge VAT with an ETC (and they give an extra 2% off) but i think people have said O2 do. I guess it really depends on the exact wording of the charge on the bill. Obviously if it says something like 6 months line rental @ £xx then has VAT added at the bottom (like a standard bill) then that would be VAT fraud as they cant claim VAT on a bill if it isnt going to be passed on to HMRC.

It would be good if someone who has had to pay an ETC could post on what the bill actually said. It might clear up some of this confusion and conjecture.

This case is slightly different though as business contracts are no covered by the same rules. For example there is no cooling off period with a business contract so i guess they can charge what they want as an ETC.

Techhead_2

This has been discussed many times before. The official position is on the Ofcom website. It shows how the service provider must calculate the charge.

Basically speaking, VAT is irrelevant because this a a charge or fee and it carries no VAT.

This confusion with VAT is because before the situation was formalised Orange used to tell customers they didn't need to pay the VAT. It snowballed from there and has become an urban myth ,even though the exact position was clarified several years ago.

grumbler

Techhead wrote: »

This confusion with VAT is because before the situation was formalised Orange used to tell customers they didn't need to pay the VAT.

Used to?!
AFAIK, they keep showing the charge without VAT in the bills. And they do make 1/6 discount.
There were many posts here proving this by quoting the real bills with ETC.

It snowballed from there and has become an urban myth ,even though the exact position was clarified several years ago.

So, what exactly the 'myth' is and what was 'clarified'? Ofcom can make 'clarifications' on the max amount only, not on taxation.

I think the 'confusion' was caused by the Ofcom's incompetence. When making the decision on the maximum charge they failed to take into account the fact that this charge isn't VAT-taxable. The 'logic' behind their 'calculation' was that the provider has to recover the money it would have received if the contract wasn't terminated, but in fact if the contract goes on the provider gets only 5/6 of this amount after paying the VAT, not 100% that most networks charge as ETC.

Buzby

Not this nonsense again?

The ETC is liable for VAT as it remains a charge for a service supplied (agreeing to the termination) this is not zero rated and never has been.

As for OFCOM, this circumstance long predates them and even OFTEL - on consumer contracts all prices are VAT inclusive, and any ETC will similarly be the same.