Phone companies and Customs talk over dropping VAT on texts

Mobile phone companies have met with HM Revenue & Customs officials to discuss eliminating VAT on donations to charity by text in a move that would cut the costs associated with text fundraising.

In a letter to the Charity Technology Trust two years ago, HMRC said that VAT should not be charged on text donations.

However, phone companies have continued to charge charities an estimated £1m a year in VAT because they cannot distinguish donations from other premium-rate texts (Third Sector, 12 March).

Major networks met with HMRC last week to discuss how a 'no tax on texts' scheme would work in practice.

"We are entirely committed to solving this problem," said a spokeswoman for Vodafone. "There isn't any network that is against making this work. We had a very constructive meeting with HMRC, and we will be following it up."

However, she warned that there would be no quick fix. "It's a complicated issue," she said. "We're looking at finding a way for this to work, but it's difficult because of how our billing system operates. We have to work through things systematically."

Charities have spent more than two years trying to persuade networks to look at the problem. Jane Kennedy, financial secretary to the Treasury, confirmed to Parliament last month that charities should not be paying VAT on texts.

"We're delighted to hear that phone companies are taking a step in the right direction," said Maria Diaz, e-communications director at the Charity Technology Trust, which has campaigned on the issue.

"We'll remain a bit sceptical for the time being. I hope we will see some results on bills in the near future."

The issue of charities paying VAT on text donations was first raised during the Asian tsunami appeal in 2005, which raised more than £1m through text messages in three days. HMRC solved the problem by making a one-off donation equal to the amount of VAT paid.

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