During a routine VAT inspection of their business, Snutch Newsagents in Leicester, the couple were told that they probably should not have been claiming back the VAT on top-ups but should be paying it instead. The inspector went away to check and added that it might depend on what was in the contract between the retailers and Epay, the supplier.
After some difficulties getting hold of their contract they finally got a definitive answer and Epay was pretty clear on the subject when I spoke to them. Top-ups are not VAT-able in themselves but the commission is subject to VAT.
Once Subhash had studied the contract, he sent me the following: "The commission on the Orange network, for eg, is advertised as 4.5%. Say you sold £100-worth including VAT of credit vouchers, the service provider (epay) takes £95.50 out of my account via direct debit (£95.50 = £78.79 + £16.71 VAT). My commission gross = £4.50 (£4.50 = £3.71 + 79p VAT). I have to pay Customs & Excise 79p. So my commission becomes 3.71% net and not the advertised 4.5%."
Whoever said retail is detail was onto something, bottom line included.