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HMRC internal manual

VAT Finance Manual

Money (including transfer of money) and related services: examples of services and products not falling within item 1: payments made by subscribers to telecommunication companies (TelCos)

Using more and more advanced technology, the nature of services provided by or via TelCos has progressed from mere telephonic services to a whole range of services, mainly available through the Short Message Service (SMS) facility on mobile phones.

TelCos have launched products to enable mobile phone users to pay for low cost products using their mobile phone (or the internet). There is no charge to the customer for this service, which aims to target specific markets, such as the youth market, by offering such products as ring tones, jokes, football clips, e-cards etc. The fact that a customer can pay for his purchases through his telephone bill without the need for a bank account or credit card makes it particularly attractive and accessible to their target market.

A customer may make purchases online or on their Wireless Application Protocol (WAP) phone from a variety of retailers with whom the TelCo has entered into agreements. The TelCo never takes title to the product and is not responsible for its advertising or delivery.

The monies collected by the TelCo on behalf of the retailers are passed to them on a monthly basis less the commission retained by the TelCo.

The TelCo is providing various services to the retailers, namely: providing access to the retailers’ websites through a link, billing customers, calculating the charges to be paid by the retailers and passing on to the retailers the amounts billed on their behalf. It would be artificial to split these supplies as together they combine to form the TelCo service. Thus there is a single composite supply. As the services are predominantly administrative and IT-related in nature they are therefore taxable at the standard rate of VAT, and any commission received by the TelCo would also be taxable at the standard rate.

If you receive questions about liability from a telecommunications company please contact the Financial & Commodities VAT UoE.