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.