A row between retailers and the government as to who should pick up the bill over the way VAT is applied to phone cards/e-top up payments could lead millions of mobile phones going dead.

As reported in The Grocer on April 26 the the row centres on a law which means that all cards or vouchers with a face value must be taxed on that amount, effective from Gordon Brown’s Budget on April 9.

A £10 top-up card will now have VAT imposed. Until now retailers - who buy the £10 cards for £8 - paid VAT only on the £8.

Of the phone networks only Virgin and Orange have said they will absorb the extra VAT. If the cost is passed on to the customer a card worth £20 will cost £23.50 or alternatively would have fewer minutes of talk time.

Customs and Excise have issued a briefing note but retailers claim it is still not clear who is expected to bear the increased costs.