That Very Awkward Tax has perplexed this column for the past few issues in its relationship to commission on telephone top-ups.

Following my definitive piece saying VAT is payable, I was contacted by Lillian Hyde who runs Premier News Food & Wine in Llandudno. Her top-ups were previously done via PostTS and she has sent me copies of her self-billing invoices which clearly state: "The VAT shown is your output tax due to Customs & Excise."

When PayZone took over PostTS this spring, she was automatically switched over. She was quite surprised when she got her first bill which stated: "The PayZone service is VAT exempt."

Her last two bills - one from PostTS and one from PayZone - carried the Alphyra logo (the owning group). Which was right, she asked? I rang PayZone and I think - I hope - now have the definitive answer.

PayZone's finance department said: "This is quite a common query, given the complexity of VAT. In
summary, commissions are VAT exempt and the retailer does not need to make any entry on their VAT return in relation to commissions received from PayZone."

I have the text of a letter that PayZone will send to retailers who question policy, which says that Alphyra's predecessor, De La Rue, requested a formal ruling from C&E years ago. The ruling, which was made by HQ VAT policy, was received on January 21, 2000, and states: "Overall, the view taken of the supplies made by the retailer agents is that they are providing payment acceptance services, such services being exempt supplies in the UK (item 1, group 5, Schedule 9 VATA 94, including services of receiving money)."

PayZone self-billed invoices created for retailers therefore state that the service is VAT exempt. There is no VAT applied to the commission, neither is there any VAT element included in the commission.