Businesses that make a charge for use of credit or debit cards, or for processing direct debit or similar payments, may have been awaiting the European Court of Justice (ECJ) decision in the case of Axa (Denplan).
The argument in the case was about whether or not a charge to each dentist employed by Denplan for processing patients’ fees was a financial service and therefore exempt from VAT. While the UK courts agreed that the fee should be exempt from VAT, the ECJ has overturned the opinion of the UK Courts and ruled that the payment processing provided by Denplan is akin to a debt collection service and hence excluded from the exemption for payments, transfers, etc and subject to VAT.
Hannah Dobson, corporate tax director at Smith & Williamson, the accountancy and financial services group, said: “It is difficult to see how the services provided by Denplan can possibly be those of debt collection in the usual sense, given that the direct debits are essentially collected from the patients at the exact moment that they fall due, i.e. Denplan is not chasing an outstanding debt for which it is charging a fee. The Court however felt that this term should be interpreted broadly – so much so that it would seem capable of application to almost any payment service, and if this analysis is taken up by the member states it could affect a very wide spectrum of business arrangements.”
Irrespective of the views on this decision, the ECJ is the last court of appeal for Axa (Denplan), and therefore this decision will stand. Any business that has been charging VAT on credit or debit card charges, or levying payment processing fees for collecting direct debits or similar should, for the time being, continue to account for VAT on such fees. For organisations that have claims stood over behind the Axa/Denplan decision, these claims are now likely to be formally rejected by HMRC.
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