Skip Navigation

VAT changes and the effect on broadband
Monday 01 December 2008 14:04:18 by Andrew Ferguson

It seems some providers are making announcements about the price drop that lowering VAT from 17.5% to 15% results in for consumers. Those providers where we know of a change are listed below:

  • Firenet has confirmed it is passing on the price cuts.
  • Be Broadband is lowering prices by 50p per month across the board, i.e. Be Value will drop to £13.50 from £14, Be Unlimited from £18 to £17.50 and Be Pro from £22 to £21.50. A flat rate price drop means that customers will be benefiting from more than a 2.5% price drop.
  • Andrews & Arnold announced it would be passing on the 2.1% saving way back on 24th November.
  • Zen Internet has updated its website to reflect the reduction.
  • Plusnet covers the issue in its community blog and is rounding down prices, e.g. a £9.99 product is reducing to £9.75 rather than the £9.78 that the maths suggests.
  • The BT Total website is showing the reductions.
  • Entanet who sells broadband via a network of resellers is now invoicing at the new rate of 15%.
  • Newnet is retaining its current net prices, so the VAT inclusive price will be dropping e.g. their Home S service will drop from £19.95 to £19.53 for consumers.

While the 2.1% reduction in price to consumers looks minimal over time the savings will add up. What would have been radical would be for broadband and telephone services to be billed at the same rate as gas and electricity which is just 5%.

Update Wednesday 3rd December : A number of UK Online customers have passed on a copy of the notice they have received in relation to the latest VAT reductions. It seems that the provider feels that due to the costs and time that would be involved in passing on the 2.1% saving, it is leaving subscriptions at the same VAT inclusive rate as previously. This basically means they are increasing the price of their service by 2.1%, but the price people pay will not alter.

"The prices for our broadband packages have always been quoted to you inclusive of VAT. Passing on the VAT reduction would create a lot of costly and time-intensive administrative work, for both us and you, in terms of overhauling customer billing processes as well as amending direct debits and payment instructions.

After careful consideration of all the options, we've taken the decision to leave subscriptions at the current rate.

The financial saving each customer would have received - equating to approximately 32p a month, is far outweighed by the disruption and additional resource these changes would cause to our customer service and support, as well as to you, the customer, in changing your direct debit or WorldPay instructions."

Extract from UK Online communication to customers

People who have sent us a copy of this communication, are using words such as 'stingy', perhaps reactions might have been better where providers did not want to pass on the saving by explaining what the saving from 1000's of customers would allow, e.g. extra capacity or to donate the savings to a charity.


Posted by meldrew over 8 years ago
Andrew, the saving on the gross payment is actually 2.1% only.

To say that "over time the savings will add up" is a little over the top. a saving of generally less than four POUNDS per year will hardly make up for increased council tax or loss of pension savings! It will take 100 years to save for two return tickets to Mallorca from Manchester, assumimg that A) I live long enough and B)the price does not go up in the meantime....
Posted by bobby_valentino over 8 years ago
Posted by Royahoward over 8 years ago
Notice that Tiscali/Pipex/et all are noticeable by their absence... Now why no surprise there ?
Posted by chrysalis over 8 years ago
it will add up for companies that DONT pass it on as on thousands of sales it will mena something, for consumers its nothing unless they buying expensive luxuries that have vat applied.
Posted by bosie over 8 years ago
What a complete waste of everyone's time, money and resources. Utter rubbish this Government.
Posted by comnut over 8 years ago

Government? Be happy for what you have... A lot so it would be WORSE with the others... - Its not just one man's fault, but all the lords, all the utterly ancient offices that *dont* change with the party in power...
Posted by rowanmoor over 8 years ago
Eclipse also seem to be passing the VAT Rate change on. I got an email about it this morning and all the prices on their web site now end with silly pence instead of the 99p norm.
Posted by digger78 over 8 years ago
@ Royahoward
Posted by jrawle over 8 years ago
"all the prices on their web site now end with silly pence instead of the 99p norm."

Isn't 99p in itself silly? What's wrong with whole numbers of pounds? It's not as if you'll be paying with cash anyway.
Posted by Spectre_01 over 8 years ago
meh, reducing the VAT to 5% on BB will do nothing for businesses since they reclaim it anyway in their VAT return, and for the home its really a luxuary item - not one of lifes essentials.

If the Government really wanted to help people out this winter they could have reduced income tax for the lower earners and/or abolished the VAT on Gas & Electricity, that would have benifited the people living on the poverty line the most while giving everyone else a little extra cash to go shopping with.
Posted by chrysalis over 8 years ago
spectre obilishing vat on gas/electric is the most obvious thing they could have done but of course we all know they not trying to help people on the poverty line they just pretending to be. Debatable now days if broadband is a luxury, certianly for housebound people its essential in helping them lead an independent life and for everyone else its still becoming more and more used in daily lifestyles.
Posted by Spectre_01 over 8 years ago
When i term household BB a luxury i make it akin to the TV, people want one in their home for entertainment reasons but unlike other utilities it is not an essential. That is to say it is a 'want' not a 'need', you will not die if someone takes away your household BB, but you might if they take away your roof, heating and water supply. Ofcorse this might all be put on its head if you take away some emo kids myspace then they might go kill themselves...
Posted by Spectre_01 over 8 years ago
...but back to topic. I'm not saying people shouldn't have BB, but that reducing VAT on it above other items of its kind is unwarranted. To my mind the only things that should have no or reduced VAT are items which are essential to life not 'lifestyle', clothes, food, water, heating etc. Sky TV, TV's, computers, BB etc should all be charged VAT the same as any other consumer goods or services.
Posted by Gzero over 8 years ago
Spectre_01, care to class the car?

It's got multiple purposes. For work, and lifestyle needs.
Posted by herdwick over 8 years ago
no VAT on food, heat & power is 5% VAT - EU minimum. The 15% VAT again is the EU minimum. Don't run away with the idea that we have a Government in London, just a local administration of EU policy. 2.1% is neither here nor there when 10, 20, 30% discounts are on offer or to be had by shopping around.
Posted by Spectre_01 over 8 years ago
never said their was VAT on food, was giving that as an example of a basic need and a zero VAT item, however some food items are classed as luxuary items and VAT is charged at standard rate.

@ Gzero, not having a car will not kill you so no it isn't generally a necessity, many people walk or use public transport and live just fine. Similar situation as a TV, can be a source of information & education but is not a life saving/giving item to have for basic human survival...
Posted by mishminx over 8 years ago
Reduced VAT on phone and broadband would just mean increased taxation elsewhere anyway. All you'd be doing is moving it around a bit. A token gesture not wholly unlike the 2.5% given to us by our glorious leader.

Plus he prefers to buy his votes through his army of welfare dependant tax credit claimants.
Posted by Spectre_01 over 8 years ago
^^ Exactly.
Posted by soyyo over 8 years ago
It's outrageous that UK Online have decided to help themselves to people's VAT reduction. They'd be quick enough to adjust their prices if VAT had increased by 2.5%.

UK Online have been encouraged by many people, including the media, saying 2.5% is not worth the bother. These are the same people who were screaming about "hidden tax bombshells" when they heard that a mere 1% rise to 18.5% had been considered. Hypocrites.

If all suppliers help themselves to a price increase, then of course the VAT reduction is worthless.

I would dump UK online immediately if I were a customer of theirs.
Posted by MisterMen over 8 years ago
If companies haven't passed the increase on then haven't they increased the prices? Maybe time to check your T&Cs and see if you can move elsewhere...
Posted by e102gamma over 8 years ago
UK Online have said that people are free to leave their contracts at no penalty if they so wish. Personally I think they're too good to leave over such an insignificant matter but it's certainly bad for customer relations.
Posted by CARPETBURN over 8 years ago
Ukonline customer here and im happy to keep paying what i have been paying. For the rest of you that are so anal you must save a few pence stop buying a daily newspaper, or if you are really really really anal think of the grief and accounting cockups that will occur at many ISPs when the VAT rate changes back. Pipex/Tiscali as an example cant even bill right before the VAT change. Ohhhh NOOOOOOO im going to be spending the same as i have been for the past 2 years and i wont have an extra 50p a month in my pocket, how will i survive... My god some of you make scrouge look like a shopaholic.
Posted by g8ens over 8 years ago
"Passing on the VAT reduction would create a lot of costly and time-intensive administrative work"

Like entering 15 in the VAT field of their accounts program, in place of the existing 17.5.

Posted by CARPETBURN over 8 years ago
^^^ I hope you never have to do accounts, work out gross and net profits and so much more
Posted by LESCLTD over 8 years ago
1. I would say that the ISPs` do not have any choice but to reduce the rate of VAT that they are charging.
The VAT content is a legal requirement and should not be treated as a costsaving / discount ect. Direct Debits are easy to work out and are designed for varible amounts as opposed to standing orders.

Posted by LESCLTD over 8 years ago
2. Where isps or for that matter any business, where they are not reducing the VAT, in effect they are acutally increasing their prices and should be announcing it too.

The rate from 1st December will affec the VAT that they have to pay HM Revenue & Customs.

Posted by LESCLTD over 8 years ago
3. Accounts packages are very easy to adjust and also I would assume that they use an automated direct debit system as opposed to the old paper based manual system.

The idea of a direct debit, is that varied amounts are able to be collected giving the customer a fixed amount of days notice.

If my ISP did not reduce the VAT then I would report them, its not for the money but the priniciple. I would take a `guess' and say that they would acting illegally.
Posted by ForwardFlareLtd over 8 years ago
... all the above shows what a pathetic small effect this adjustment to VAT is making.

It is a typical (not exclusive to Labour) Government tactic to create such a memorable headline only to use it in the future to 'justify' an increase which will be far more significant in costs to individuals and businesses. It is being used to justify reduced public spending, tightening up welfare rules and so on.

Why don't they just scrap ID cards and move the Olympics to France so we can keep the savings?
Posted by Stuartli over 8 years ago
People like Spectre_01 6 are a Labour minister/politician's dream - gullible to any impressive, but usually meaningless gesture towards voters and, like them, misrepresenting facts to suit their case (VAT with regard to clothes, food).

I'm quite sure that if, for instance, M and S trumpeted far and wide that it was giving discounts of two-and-a-half per cent, the majority would have a good laugh and move on to matters of real interest.
Posted by CARPETBURN over 8 years ago
quote"1. I would say that the ISPs` do not have any choice but to reduce the rate of VAT that they are charging.
The VAT content is a legal requirement and should not be treated as a costsaving / discount ect. Direct Debits are easy to work out and are designed for varible amounts as opposed to standing orders."

Blah blah, you reduce VAT fine, ill increase the excluding VAT price to bring it into line of what the price including VAT was before the change.... POOF there goes your wonderful legal theory
You must be logged in to post comments. Click here to login.