O2 has become the first network operator to put in place a new system which means charities should receive around 90% of the money donated by its customers through SMS.
Until now, due to the structure of Premium SMS, a charity would not receive the full price of a text message donation, with part of it going on VAT, network and administrator charges.
Following an agreement brokered by the Mobile Data Association (MDA) (and agreed to by mobile network operators 3, Orange, T-Mobile, Telefónica, Vodafone and O2) it was announced in July 2009 that the VAT on donations made by text message to charities registered with HM Revenue & Customs would be passed directly to the charity.
Martin Ballard, Operations Director of the MDA, who has driven the initiative, said: "This is a really fantastic development both for the UK charitable sector and a great example of the mobile industry collaborating for a good cause. Mobile is a powerful way for people to support and donate to charities and this development makes the whole process clearer for all parties.".
How it works
Donations to charity, including those made by text message, are outside the scope of VAT. However, VAT is chargeable in the normal way on charges made by telecoms providers for text services. The new framework utilises special VAT-free Short Codes, beginning '70' which are for use only by registered UK charities, and means that charities of all sizes will be able to receive an additional 15% (the current standard rate of VAT) for donations sent via text message. In the past this has only happened for large national charitable events such as Comic Relief.
Mobile users can donate up to £10 by either sending a text message to a dedicated Short Code or by using Payforit, a recognised UK standard for mobile payments.
How much are we talking about?
Charities that receive donations of up to £10 via texts to O2 will receive 90% of the donation; around 10% more than previously. However, things aren't quite that simple because those charities will also need to pay an 'aggregator' to set up the text message service and arrange connection to the mobile networks. Only the donation proportion of a payment is VAT-free. O2 will still pass on operational costs to charities. It says its 10% charge covers network costs, VAT on the cost of the text message itself, insurance against bad debt and third party costs.
Hannah Terrey, Head of Policy and Public Affairs at the Charities Aid Foundation, said: "O2's promise that charities will receive 90 per cent of a donation is a very positive move, although this still means £1 will be lost in charges on a £10 donation."
"Eventually we would like all mobile phone companies to charge no more than 10p, whatever the size of donation, because research shows that is the maximum amount acceptable to donors."
"Text donations have a huge capacity to bring in more funds from a new younger generation of donors. We will continue to work with Joe Saxton and the Institute of Fundraising to persuade the other mobile phone operators to follow O2's lead."
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