Loan servicing was not within the financial services exemption

The taxpayer provided outsourced loan administration services to banks and building societies – it did not make loans. The appeal concerned the services it provided to Shawbrook Bank. The taxpayer asked HMRC for a ruling that its services were composite supplies of payment processing services which were exempt from VAT (article 135(1)(d) of the EU Principal VAT Directive).

HMRC refused saying the services were taxable supplies of the management of loan accounts.

The First-tier Tribunal Upper Tribunal and Court of Appeal agreed with HMRC so the taxpayer appealed to the Supreme Court.

Lord Hamblen gave the judgment with which all the other justices agreed. On the taxpayer’s claim that its services fell under the financial services exemption because it gave instructions which automatically resulted in payment from the borrower’s bank accounts to Shawbrook’s bank accounts the judge said that to be exempt the services must...