VAT On Unused Service


S

Stuart M

I recently cancelled a subscription with an ISP. I had signed a one year
contract with them and there were a few months left which I had to pay for.
When cancelling, I was told that I wouldnt have to pay VAT. This was
confirmed by another person at the ISP.
When the invoice came, it had vat on it (+ one month extra in error). Six
emails and two letters later, they are saying that I will have to pay VAT.
Is this right? I just wonder why I was told in the first place I wouldnt
have to pay it.
If anyone could tell me the relevant regs that would be great.

Thanks

Stuart
 
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A

Adrian Boliston

Stuart M said:
I recently cancelled a subscription with an ISP. I had signed a one
year contract with them and there were a few months left which I had
to pay for. When cancelling, I was told that I wouldnt have to pay
VAT. This was confirmed by another person at the ISP.
When the invoice came, it had vat on it (+ one month extra in error).
Six emails and two letters later, they are saying that I will have to
pay VAT. Is this right? I just wonder why I was told in the first
place I wouldnt have to pay it.
If anyone could tell me the relevant regs that would be great.
You have to pay vat on the service whether you use it or not i'm afraid. If
this were not the case it could create a massive vat loophole.
 
J

Joe Lee

Stuart M said:
I recently cancelled a subscription with an ISP. I had signed a one year
contract with them and there were a few months left which I had to pay for.
When cancelling, I was told that I wouldnt have to pay VAT. This was
confirmed by another person at the ISP.
When the invoice came, it had vat on it (+ one month extra in error). Six
emails and two letters later, they are saying that I will have to pay VAT.
Is this right?

Yes, but they should either provide a modified Invoice or credit note in
respect of the extra month, in order thst you don't pay VAT on the extra
month.


I just wonder why I was told in the first place I wouldnt
have to pay it.
You may have been talking to people in the 'technical' dept. who wasn't
familiar with the application of VAT on Invoices. They should have referred
you to their billing dept.
If anyone could tell me the relevant regs that would be great.
I don't know the reg. No's off-hand but the most basic VAT principles
apply. Where a Co. or trader is VAT registered all Invoices raised in
respect of goods or services provided by the business must have the VAT
element added to the nett total. The only exception is where the goods are
zero rated for VAT purposes. As far as I am aware all services provided by
an ISP are subject to the addition of VAT.

Joe Lee
 
S

Stuart M

Joe Lee said:
Yes, but they should either provide a modified Invoice or credit note in
respect of the extra month, in order thst you don't pay VAT on the extra
month.
You have obviously dealt with this "company" before. They did indeed take
off the extra month but leave the vat on for it!

Thank you for your advice. I just wish they had not told me this in the
first place.

Regards,

Stuart
 
S

Stuart M

Adrian Boliston said:
You have to pay vat on the service whether you use it or not i'm afraid.
If this were not the case it could create a massive vat loophole.
Thank you Adrian.

Stuart
 
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N

Nogood Boyo

I don't know the reg. No's off-hand but the most basic VAT principles
apply. Where a Co. or trader is VAT registered all Invoices raised in
respect of goods or services provided by the business must have the VAT
element added to the nett total.
That is simplistic and is incorrect.
The only exception is where the goods are zero rated for VAT purposes.
Also not correct.
As far as I am aware all services provided by an ISP are subject to
the addition of VAT.
I can think of ISP services which would not be standard-rated.

If you look in The VAT Guide, you'll find that cancellation charges
(where the originally intended supply is not made) are not taxable...
 
N

Nogood Boyo

I recently cancelled a subscription with an ISP. I had signed a one year
contract with them and there were a few months left which I had to pay for.
When cancelling, I was told that I wouldnt have to pay VAT. This was
confirmed by another person at the ISP.
When the invoice came, it had vat on it (+ one month extra in error). Six
emails and two letters later, they are saying that I will have to pay VAT.
Is this right? I just wonder why I was told in the first place I wouldnt
have to pay it.
If anyone could tell me the relevant regs that would be great.
Notice 700, The VAT Guide, para 8.13 deals with cancellation charges.
They are not taxable because they do not relate to a taxable supply of
goods or services.

www.hmce.gov.uk -> Library -> Public Notices -> VAT -> VAT Guide
 
T

Take a Walk

Notice 700, The VAT Guide, para 8.13 deals with cancellation charges.
They are not taxable because they do not relate to a taxable supply of
goods or services.

www.hmce.gov.uk -> Library -> Public Notices -> VAT -> VAT Guide
Nice try despite the crap link! You have to **** about and find a pdf to
download to find that this refers to if you want to charge someone to
cancel something and WOW , yes it is VAT free.

But the OP did not refer to cancellation charges. They are charges
for use of services (and the use is not wanted but is available as per
contract).

Its like someone taking on a contact for supply of 12 months usenet posts,
they don't want any more, but tough shit they still have to pay (and the
vat).

If ISP allowed them to break contract and didn't bill them for remaining
months, but billed them £50 cancellation fee - this could be vat free.
 
S

Stuart M

Take a Walk said:
Nice try despite the crap link! You have to **** about and find a pdf to
download to find that this refers to if you want to charge someone to
cancel something and WOW , yes it is VAT free.

But the OP did not refer to cancellation charges. They are charges
for use of services (and the use is not wanted but is available as per
contract).

Its like someone taking on a contact for supply of 12 months usenet posts,
they don't want any more, but tough shit they still have to pay (and the
vat).

If ISP allowed them to break contract and didn't bill them for remaining
months, but billed them £50 cancellation fee - this could be vat free.
The fee is indeed stated on the invoice as "Cancellation fee". I guess that
means I've got them?

Thank you both.

Regards,

Stuart
 
R

Rev Adrian Kennard

Nogood said:
That is simplistic and is incorrect.



Also not correct.



I can think of ISP services which would not be standard-rated.

If you look in The VAT Guide, you'll find that cancellation charges
(where the originally intended supply is not made) are not taxable...
I was just going to query that... VAT applies when making VATable
supply, but a cancellation charge has no supply and is a penalty.
Penalties are not VATable.

I'll have to read up on the VAT guide on that!

As an ISP, almost all of our services have no minimum term, so it is not
an issue, but a few do. When charging for early termination on these, we
probably should not charge VAT.

Also, whilst it does not help us one bit, I like to wind up BT, and they
*do* have termination charges on which they do charge VAT. If they are
(once again) breaking the VAT rules, I will take great delight in
complaining to them <-:

Time for some reading I think.
 
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C

Chuckles The Scary Clown

Joe Lee said:
I don't know the reg. No's off-hand but the most basic VAT principles
apply. Where a Co. or trader is VAT registered all Invoices raised in
respect of goods or services provided by the business must have the VAT
element added to the nett total. The only exception is where the goods are
zero rated for VAT purposes. As far as I am aware all services provided by
an ISP are subject to the addition of VAT.

Joe Lee
OT I know but I feel like a rant............there are those of us old enough
to remember when VAT was introduced as a "luxury" tax.............funny how
things like food, electricity and gas are regarded (and accepted by the
sheeple) as being luxuries!
 
R

Ronald Raygun

Chuckles said:
OT I know but I feel like a rant............there are those of us old
enough to remember when VAT was introduced as a "luxury" tax......
Are you sure? Wasn't it basically on everything (with some exceptions)
but with a higher rate for "luxuries"? Something like 8% and 25%. So
if you bought a packet of brass screws in a yacht chandler's it would
attract 25% VAT, but the exact same packet at the corner ironmonger's
would attract only 8%.
.......funny how things like food, electricity and gas are
regarded (and accepted by the sheeple) as being luxuries!
There is VAT only on hot food, isn't there? And electricity
and gas are charged only at today's equivalent of the non-luxury
rate.
 
B

bigbrian

You have your Jaffa Cakes grilled?
There's no VAT on Jaffa cakes unless they're sold hot as takeaway
food. I'm sure there's a fish and chip shop somewhere in Scotland
selling them deep fried

Brian
 
R

Ronald Raygun

Troy said:
You have your Jaffa Cakes grilled?
OK, poor choice of words. There is VAT only on luxury foodstuffs,
and hot prepared food falls into that category. So there is VAT on
fish & chips. This was introduced in Thatcher's time, I believe,
when this move pushed the price of the average fish supper above
the psychologically important one pound barrier.

But, like many, you misremember the Jaffa Cake story, I think.
There was a big stushie in 1991 between the VAT Commissioners and
the makers of Jaffa Cakes (United Biscuits). The makers, despite
their name, maintained the JCs were cakes, which (oddly, to some)
do not attract VAT because they count as a basic foodstuff.
VATC thought they were biscuits, which count as a luxury and do
attract VAT. UB won. Apparently what swung it was that JCs, like
cakes generally, go hard when they go stale. Biscuits, on the other
hand, go soggy.

There is no VAT on Jaffa Cakes.
 
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R

Rev Adrian Kennard

bigbrian said:
There's no VAT on Jaffa cakes unless they're sold hot as takeaway
food. I'm sure there's a fish and chip shop somewhere in Scotland
selling them deep fried
Aren't Jaffa Cakes the exception with no VAT - that they won some battle
that they are "cakes" and not sweets or biscuits?
 
A

Alan G

But, like many, you misremember the Jaffa Cake story, I think.
There was a big stushie in 1991 between the VAT Commissioners and
the makers of Jaffa Cakes (United Biscuits). The makers, despite
their name, maintained the JCs were cakes, which (oddly, to some)
do not attract VAT because they count as a basic foodstuff.
VATC thought they were biscuits, which count as a luxury and do
attract VAT. UB won. Apparently what swung it was that JCs, like
cakes generally, go hard when they go stale. Biscuits, on the other
hand, go soggy.

Interestingly the local Morrisons supermarket keeps the Jaffa cakes
with the biscuits rather than the cakes
 
R

Rev Adrian Kennard

Take said:
...
But the OP did not refer to cancellation charges. They are charges
for use of services (and the use is not wanted but is available as per
contract).

Its like someone taking on a contact for supply of 12 months usenet posts,
they don't want any more, but tough shit they still have to pay (and the
vat).
...
In this case I believe it was marked as cancellation charges.

However, does that make a difference?

If I offer a service for 12 month min term, and the custoemr stops after
6 months. If I then charge for the remaining six months, whether I label
it as a service charge or a cancellation charge, it is NOT actually for
providing a further six months service (assuming it is the sort of
service that actually stops, such as ISP services).
 
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B

bigbrian

Aren't Jaffa Cakes the exception with no VAT - that they won some battle
that they are "cakes" and not sweets or biscuits?
There's no VAT on Jaffa Cakes ordinarily because, as you say, they won
their case to have them classified as biscuits rather than cakes. (or,
more accurately, food rather than confectionery, I believe)

But there's also no VAT on fish or potatoes, for example. There *is*
VAT however on hot takeaway food, which can include fish, potatoes,
and even Jaffa Cakes should the food outlet so desire. If you sell a
deep fried Jaffa Cake as a hot takeaway food item, you have to charge
VAT on it.

There was also a case, I believe, where a fish and chip shop tried to
claim that they were selling the salt and vinegar (cold), and
providing the (hot) fish and chips without charge, but they didn't get
very far with that one.


Brian
 

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