Virgin Media is charging customers the new, increased VAT rate for phone calls that were made before the hike.

The telecoms giant has caused uproar by levying the new 20% rate on many calls made in December and early January that should have been charged at 17.5%.

While the difference only adds up to a few pounds or pence extra per person, the combined effect from its 4.1 million landline customers' payments could add up to hundreds of thousands of pounds in extra cash that consumers hand over.

The VAT sales tax rose from 17.5% to 20% on 4 January, pushing up the cost of many goods and services by 2.1%.

Virgin is applying the 20% rate to all calls on customers' January statements, which will includes usage during the previous month.

Rivals BT, Sky and TalkTalk say they are only charging 20% on calls made from 4 January.

Virgin customer? What can you do?

Virgin is standing firm on its right to charge the higher VAT rate early but, on the other hand, says it will consider refund claims on a "case by case basis".

Dave Fowler, from Bedfordshire, was charged the 20% rate on all calls on his bill dated 7 January, which covered the previous 31 days. Virgin added 82p VAT to his £4.11 worth of calls.

Dave rang the company to ask for a refund and was given £1 back, which included a gesture of goodwill payment.

He says that while the difference was only a few pence, "it's about the principle".

Archna Luthra, consumer products analyst, says: "This is a shocking tactic from Virgin, which shouldn't be allowed to get away with it.

"This is effectively a stealth price hike and we'd urge all Virgin customers to ring up and push for a refund even if it is only pennies."

What Virgin says

The telecoms giant says it has consulted HM Revenue and Customs (HMRC) which Virgin says has given it the all clear. The company stresses it is not profiting from the hike because the extra cash goes to the taxman, though consumers are nevertheless paying too much.

HMRC rules for retailers state: "If your customer pays on or after 4 January for something they took away (or you delivered) before 4 January you should use the 17.5% rate."

An HMRC spokesman says it would never know exactly when a service was provided unless it carried out a tax inspection so it would accept the extra cash. It says it cannot comment on individual cases.

A Virgin spokeswoman says: "Like all companies supplying goods and services, Virgin Media has increased VAT on its products and services in line with the VAT increase.

"However, while most services are billed in advance, for items that are billed in arrears, such as telephone calls, these items are charged at the prevailing VAT rate at the time of billing.

"In order to make these increases as manageable for our customers as possible, we have rounded down the VAT increases to the nearest penny.

"For other costs such as installation, certain broadband services and certain TV on demand services, we've frozen prices to maintain exceptional value."

The problem does not affect standard line rental charges or other services paid for in advance because they should be billed at 20% VAT from 4 January, as has happened.

Further reading/Key links

Slash call costs: Home Phones, Cheap Mobiles