UK customs officials have decided not to introduce sweeping changes to the rules governing mobile phone sales, which could have raised prices and put many smaller dealerships out of business.
Mobile phone dealers and network operators said they welcomed HM Customs & Excise's decision not to change current policy and force dealers to pay VAT on the full price of mobile phone handsets, even when they were given away or subsidised.
Customs is expected to confirm shortly that dealers will only have to pay VAT on cash they receive from handset sales, as they do at present.
While handsets can cost several hundred pounds to manufacture, retailers are able to offer them at little or no cost, providing the customer signs an airtime contract. The full cost of the phones is met by the airtime providers, which pay dealers bonuses for connection contracts.
Smaller dealers could have been badly affected had the policy been changed, according to Robin Hume, head of VAT services at Deloitte & Touche Scotland. The consultancy worked closely with Customs policy makers to persuade them to reject the proposed change in the interests of the mobile phone industry.
"If Customs had brought in their policy the industry would have faced a simple choice - change the way it does business or stand by and watch many of the smaller dealers go out of business," said Hume.
Despite initially favouring the change of policy, Customs changed its mind after hearing the concerns of the mobile industry, according to Hume. "[Customs] demonstrated that they were genuinely concerned with the commercial impact of their policy," he said.
High street mobile phone retailer The Link said it fully welcomed Customs' decision not to change its policy. "Had we been made to pay VAT on the value of a phone it would have been unfair," said a spokeswoman.
Mobile network operator Cellnet also said it welcomed the decision. "It's good for the industry without doubt," said Cellnet spokesman Damian Peachy. "If dealers had been liable for costs, they would inevitably have been passed on to the customers."
Customs decided to review its policy after a tribunal regarding a free mobile phone promotion by Thorn. Customs said the phones were gifts, therefore taxable, but Thorn won the case because customers were paying an associated charge for their airtime contract.
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