Millions of residential and business users will be forced to pay #800 million in taxes, when HM Customs & Excise slaps VAT on Internet access and telecomms services from non-EC-based suppliers on 1 July.
The move will deal a significant blow to financial institutions, which have enjoyed low cost, tax-free calls from suppliers based overseas. Such customers will lose out because they not permitted to reclaim tax.
The issue has arisen because of a loophole that has, until now, enabled customers to avoid paying tax if they buy their telecomms and Internet access services from non-EC suppliers. This is because the suppliers bill them from their headquarters, usually in the US or Hong Kong.
However, all 15 member states of the EC have agreed to begin charging VAT on services purchased by EC customers, no matter where the supplier is based.
A Customs & Excise spokesperson said: ?Businesses are going to have to account for VAT themselves rather than the supplier.? At last year?s Budget, the tax office said the UK was losing #800 million a year in taxes because of the loophole, he added.
Customers of online services providers such as Compuserve and telecomms companies including MFS Communications, which controls a portion of the financial market, will be affected. An MFS spokesperson said the company will continue to bill customers from the US and it will be up to the customer to include VAT. He said: ?We will work with customers to identify ways of minimising their tax expenses.?
A Compuserve spokesperson said: ?We have always said we will operate within the law, but until we consider all the options it is difficult to say how we would implement this.? Options will range from absorbing the charge themselves or passing it on to the user. Around 40 per cent of Compuserve?s customers are business organisations, with the remainder having personal accounts at work or home.
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