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Notice to Industry: PhonepayPlus’ response to increase in VAT from 4 January 2011

8 December 2010


This Notice applies to those operating premium rate services (PRS) on the number ranges beginning 0871/2/3 and 09


Background

On 22 June 2010, the Chancellor of the Exchequer issued a special budget statement that included notification of an increase in the rate of VAT from 17.5% to 20% with effect from 4 January 2011. This increase will apply to all telephone services, including premium rate services operating on the number ranges beginning 0871/2/3 and 09.

In line with Ofcom’s recently-concluded consultation with regard to the revising of existing tariff-caps, which will result in changes to the Numbering Plan (‘Changes to the Numbering Plan – A proposal for modifications to the National Telephone Numbering Plan to facilitate the increase in VAT from January 2011’), and as was the case with other recent VAT raises and reductions, the questions arising from the Chancellor’s statement concentrate on two main issues: pricing information and the split of revenue between Network operators and contracted parties.

Our expectations

Depending on the action taken by individual billing networks, some consumers of premium rate services may have to pay slightly more than the currently advertised rate once the rise in VAT comes into effect. To offer some examples, service costing 50p, £1 or £1.50 per minute today may cost users up to 51p, £1.02 or £1.53 per minute (including VAT) respectively, from 4 January 2011.

Although we appreciate that the change in price is small in comparison to the overall cost of using a service, we remind providers that our Code of Practice makes it clear that consumers must be clearly and straightforwardly informed of the cost of using a service prior to them incurring any charge.

Paragraph 5.7.1 of the 11th edition of PhonepayPlus’ Code of Practice states:

“Service providers must ensure that all users of premium rate services are fully informed, clearly and straightforwardly, of the cost of using a service prior to incurring any charge”.

As such, those responsible for the marketing of services will be required to amend promotional material in line with the date of effect for the increase in VAT from 17.5% to 20%, where the price of a service is going to be affected, so as to continue to clearly inform consumers of the cost of a service.  Where a service also carries a requirement to provide verbal pricing upon connection, then the same requirement also applies.

We recognise that in these special circumstances providers may have made best efforts to update their promotions in time, but owing to the timing of price changes being notified and advertising lead times or other technical reasons, have been unable to achieve this promptly. Where providers are able to show best endeavours, and where any failure to properly promote the price of the service has not led to significant consumer harm, we will work with the provider to resolve the issue informally.

We are also aware that some service promotions carry long shelf-lives or long lead times in print media – where those services are concerned, we expect providers to change their promotions at the first available opportunity. For any such services, providers may, in this case, wish to consider adding a recorded message at the start of the service explaining the change in VAT and the new cost of the service per minute (or the total cost of the call in the case of a drop-charge service), in the interim period where this is expected to have a significant impact on the overall cost of the service.

0871/2/3 number range

Services that use numbers commencing with one of the prefixes above cost between 5p and 10p per minute. When the rise in VAT is factored into these amounts, the revised totals are 5.1p and 10.2p per minute respectively.

PhonepayPlus does not consider it necessary for those providing these services to alter promotional material where the only increase in cost is as a result of the VAT increase on 4 January 2011.

Spending caps and call cost warnings/forced release

The 11th edition of the PhonepayPlus Code of Practice, and various prior permission requirements around live services, currently set out a number of spending thresholds or caps, after which consumers must be informed of how much they have spent on a service in a 24-hour period, or the call must be terminated by forced release.

To clarify, these spending thresholds and caps will not change with regard to the 11th edition of the Code of Practice. In practice, this will mean that services that have a higher advertised rate – e.g. £1.53 per minute rather than £1.50 – would be required to forced release after 19 minutes of use (where the Code or Prior Permission requires), rather than 20 minutes. However, in the new Code of Practice, which will come into force in the second half of 2011, spending caps will become VAT-exclusive.

Where providers have alternative solutions to the expectations set out in this Notice that they wish to discuss, they are advised to contact our Industry Affairs & Intelligence Team on 0845 026 1060* or at compliance@phonepayplus.org.uk .

PhonepayPlus will monitor service promotions once the change has taken effect on 4 January 2011, to ensure they are compliant with the Code requirements around pricing clarity. Any services found not to be compliant may face further regulatory activity.

With regard to the sharing of any potential increased revenue from services, this remains a commercial matter for the parties involved and PhonepayPlus will not be issuing any guidance on this issue.

*Calls provided by BT will be charged at up to 2p per minute, with an 11p set-up charge. Mobile and other providers' charges may vary and are likely to cost more.