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By Ben King, 18 March 2002 17:25

NEWS AOL won't have to charge its internet customers VAT for another year, according to a new ruling, incensing rival ISPs which claim the legal loophole gives the company an unfair competitive advantage. HM Customs and Excise, which is responsible for the matter, has named 1 July 2003 as the date AOL (and any ISP that happens to be based outside the EU) will have to start charging its customers VAT. Since 1997, Customs and Excise policy has been that AOL has not had to pay VAT. The US-registered ISP has been able to use a legal loophole that allows it to class itself as a content provider rather than a supplier of telecommunications services. The situation has so incensed Freeserve that it has initiated court proceedings against Customs and Excise. It claims the loophole allows AOL to save £30m per year. Given that it accepts the current situation is unfair, why hasn't Customs and Excise decided to change the situation sooner? A spokeswoman for HM Customs says the recent statement is merely a clarification, issued to correct speculation following a meeting of EU finance ministers in January, at which it was decided the VAT loophole should be closed across Europe on the same date. A spokesman for BTopenworld, which has supported Freeserve's stand, but has not as yet unleashed its own lawyers, said: "The ruling could be implemented sooner than July 2003, and it should be. We are disappointed." Will this ruling be enough to pacify Freeserve? The company was unable to confirm that it will definitely continue with the court case against Customs and Excise, but as yet has not announced any plans to cancel it. A spokeswoman for AOL said: "We have been complying with Customs and Excise and we will continue to comply with them and the EU directive."