Phone companies persist in adding VAT to text donations

By David Ainsworth, Third Sector, 12 March 2008

Mobile phone companies have continued to charge VAT on charitable donations sent by text message, despite knowing for two years they should not be doing so.

VAT on text donations is estimated to cost the sector about £1m a year - but Jane Kennedy, financial secretary to the Treasury, confirmed to Parliament last week that charities should not be paying it.

Phone companies have known this since 2006, according to Maria Diaz, e-communications manager at the Charity Technology Trust. "We got a letter two years ago from HM Revenue and Customs confirming that text donations should be free of VAT," she said.

"We went to the companies with this information at that time, but so far they've done nothing about it."

At present, she said, the networks have no method of recognising which text messages are donations and which are normal premium-rate texts, so they cannot tell which messages should be VAT-free.

Charities want phone companies to provide specialist short codes, so that donation texts can be easily recognised. But phone companies have so far refused.

"Phone companies don't even make money out of charging VAT," said Diaz. "They just don't want the administration costs of making changes."

The issue of VAT on text message donations was first raised during the tsunami appeal, when about £1m was raised by text donations. Then, HM Revenue and Customs made a one-off donation equal to the VAT.

A spokesman for HMRC said that if charities had been overcharged, they could reclaim the VAT from the phone companies - which would then be able to reclaim it from HMRC.

An O2 spokeswoman said the company would "incur significant additional administrative costs" if it tried to increase the amount of money going to charity from each donation.

An Orange spokeswoman said the company was seeking clarification from HMRC about VAT on text services linked to charitable causes. Vodafone, T-Mobile and 3 all declined to comment.

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David Pearce

David Pearce, 12 March 2008, 09:06

It seems phone companies have not heard of corporate social responsibility.

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Roger Craven

Roger Craven, 12 March 2008, 13:12

Mobile networks are large IT lead organisations and it is often the case that the voice from the IT department is initially the loudest when asked a question about technical change, before the voice from wiser council is heard.

These are the facts below...

1. Maria was talking about the situation in the past

2. Mobile networks are not exempt from VAT legislation and cannot exempt themselves.

3 The only choice for mobile networks would be to not accept payments for charity donations along with any other form of VAT exempt payment

4. Exempting non VATable payments means not accepting any gambling payments which would be strategically difficult for the board of any mobile network to do... whilst keeping investors happy.

5. The change at its simplest is the change to an invoice not to the "billing systems"

6. I and a number of others are working with several senior people in the networks at board level, the Mobile Data Association and PhonepayPlus on implementing VAT free payments ... so it will happen whatever the so called spokesperson says.

Roger Craven

Vir2 Ltd

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Roger Craven

Roger Craven, 12 March 2008, 13:35

Further to comment above I can confirm there is a 3 point plan for the implementation of VAT free short codes and that they will happen. If you need more information contact me at Vir2.co.uk

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