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HMRC have clarified their position following the European Court of Justice (ECJ) judgment in AXA UK plc (C-175/09).
The case concerned the VAT status of one of the supplies made by Denplan, a member of the AXA VAT group, to the dentists in connection with the operation of the plan: collecting payments and accounting to dentists for payments received.
The ECJ found that the supply AXA made to dentists, namely the collection, processing and onward payment of sums of money due from third parties to the dentists, was specifically excluded from the exemption in Article 135(1)(d) of the EU VAT directive as ‘debt collection’.
Following the judgment, HMRC say 'debt collection’ cannot be seen as applying solely to the service of chasing and recovering overdue payments on behalf of the creditor.
Services principally concerned with collecting payments from the person owing them for the entity to which those payments are owed fall within the exclusion to the exemption and are liable to VAT at the standard rate.
Supplies that involve the collection of payments as a minor or ancillary function, but which are mainly concerned with other payment-related transactions that fall within the Article 135(1) exemptions – for example the movement and settlement of payments between bank accounts – are not affected by the ECJ judgment and remain exempt.
Businesses should apply VAT to such services from the date of Revenue & Customs Brief 54/10 (12 January 2011).
