Freeserve has lost its long-running campaign to force AOL to pay VAT in the UK.

The High Court dismissed an attempt by Freeserve to challenge HM Customs and Excise's decision not to charge VAT on AOL's Internet service in the UK. The High Court also turned down Freeserve's bid to appeal the decision.

During that time Freeserve argued for a "level playing field" claiming that a tax loophole meant that AOL was exempt from paying around £100 million in VAT.

It launched a series of high-profile campaigns in what became an increasingly bitter bid to highlight its plight before eventually taking legal action.

Now, though, the case has been thrown out and Freeserve has got to pay costs - estimated at more than £500,000.

Freeserve pressed ahead with its VAT campaign, even though new European legislation introduced during the summer meant that all ISPs - even AOL - now pay VAT.

In a statement Freeserve said: "We are disappointed with the verdict but we are pleased that since 1 July 2003 AOL is in line with all other ISPs and has been paying VAT so that the level playing field we fought long and hard for has been achieved."

AOL - which stated throughout that it has always played by the rules - had this to say: "The High Court has confirmed that Customs & Excise followed the correct procedure in coming to its original decision to make any information providers with their hubs outside the EU exempt from VAT. AOL has always abided by the relevant legislation on VAT and will continue to do so." ®

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