How can VAT cost more than the service itself, when VAT is set at 20% of the cost?

(I believe its £2.49 without VAT, £2.99 with VAT included)

  > £2.49 excl. VAT /month
  > ( £2.99 VAT inc)

That's £2.69 service and £0.50 VAT. Seems reasonable to me.

> That VAT costs more than the service.

I suspect the error here is confusing the VAT inclusive cost with the cost of the VAT alone.

Try ovh.ie. You have to send proof of address, but you don't have to pay VAT if you live in the US.