As The Grocer went to press, retailers were seeking clarification from phone companies as to whose margins would be hit, and how the changes would be implemented.
Currently, VAT is only charged on the cost price at which networks sell cards on to retailers, so that the retailer's margin is not subject to tax. That is, if Vodafone sells a £10 card to a retailer for £9.50, the 50p margin is not taxed and the consumer gets £10 worth of goods and services of which only £9.50 is subject to VAT.
Under the new rules, VAT will apply to the face value of the card when it is sold to the customer, so every penny of a £10 voucher will be subject to VAT. What remains unclear is who will take the hit phone companies, consumers or retailers.
One distributor, who asked not to be named, said: "The face value of the cards will remain the same, but tax has gone up, so someone is going to lose out somewhere."