VAT on an airtime discount?

iMat75

I wonder if any of you lovely people can help me. O2 offered a discount to me on my monthly airtime plan. The discount was for £14 a month. When I got my bill through for the first full month the discount was £11.67 so I queried it, their response was:

'Having investigated the account, we can confirm that the Tariff Price and discount is correct as shown on the bill. The monthly charge is £32.73 without VAT, if you add 20% VAT it is £39.27. The discount without VAT is £11.67, if you add 20% VAT it is £14.00. £39.27 minus £14.00 is £25.27.'

So, it's clear they are deducting the discount off the total bill, that includes VAT.

On the HMRC website it states: Charging VAT on discounts: For basic discounts, charge VAT on the discounted price.

So I believe my new bill should be: £32.73-£14.00 =£18.73 + VAT @ 20% = £3.75
TOTAL: £22.47  O2 are making the discount £11.67 + VAT = £14.

Is this correct? Why would you include VAT on a discount amount of £14? 

If I was offered a discount of £14, then the discount should not equal £11.67. If O2 are calculating it right, then it should be made clear that the discount is inclusive of VAT?

Any help would be appreciated. Has anyone queried this with their provider?

saajan_12

Is this for a personal or business contract? 
What was the agreed price before the discount?

Personal contracts are usually stated / advertised inclusive of VAT as that's the price you pay, and the vat the breakdown in the bill is largely irrelevant, just for their records. Generally I'd expect 
Price: £39.27
Discount: £14.00
Net: £25.27

Neil_Jones

For domesti use, as the end product has to be sold inclusive of VAT it makes sense that your discount is inclusive of VAT as well.

If your discount is £14 and the full price should be £39.27 inc VAT, then £39.27 - £14 = £25.27 inc VAT. (£21.05 ex)

What are you paying exactly?

iMat75

Thank you, you are both the only people that have explained it in simple terms, I applaud you both!

It's a personal contract, they just offered me the £14 discount due to another issue where it clearly said my airtime tariff would separate from my phone after 2 years, then told me I had to pay the phone off first!

I'm paying £25.27. I just think it's bizarre that VAT is included in a discount but they should make that clear. You don't see £14 plus VAT, of course it's the lower amount. I accepted £14 but ended up with £11.67.

I completely baffled the ombudsman with it that I don't think they understood the issue.

Neil_Jones

iMat75 said:

Thank you, you are both the only people that have explained it in simple terms, I applaud you both!

It's a personal contract, they just offered me the £14 discount due to another issue where it clearly said my airtime tariff would separate from my phone after 2 years, then told me I had to pay the phone off first!

I'm paying £25.27. I just think it's bizarre that VAT is included in a discount but they should make that clear. You don't see £14 plus VAT, of course it's the lower amount. I accepted £14 but ended up with £11.67.

I completely baffled the ombudsman with it that I don't think they understood the issue.

Seems clear to me.   £14 discount.  It has to include VAT, its not a tax you can "avoid" (for want of a better phrase) as its included in the price.  Business can claim the VAT portion back (in this case the £4.22).

What your invoice/bill says is a different matter.  It may be all ex VAT and then have 20% applied, or it may be line by line.  If its line by line that's probably why it says £11.67.