A UK Update on Recent VAT Changes
August 10, 2011
Arun Birla, Jiten Tank & David Mallett
Set out below is a snapshot of some of the key VAT developments that have arisen so far in 2011 and a summary of their impact in the UK.
VAT in Respect of Services Following the European Court of Justice (ECJ) Judgment in AXA UK PLC (CASE REF C-175/09) (AXA)
AXA was primarily concerned with the application of the exemption from VAT at Article 135(1)(d) of the EU VAT Directive for transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection, which is implemented into UK law as the exemption for payments and transfers at Item 1, Group 5 of Schedule 9 to the Value Added Tax Act 1994. The point in question being whether the services concerned fell within the scope of debt collection and would therefore be liable to VAT at the standard rate.
Whilst this case had progressed through both the VAT Tribunal and the High Court in favour of AXA with findings of a separate exempt supply of payment services falling within Article 135(1)(d), upon reaching the Court of Appeal, it was determined that the issue was not clear and that the matter should be referred to the ECJ. Explicit consideration was therefore given to the specific functions of a business that would bring it within the VAT exemption.
The ECJ subsequently held that the supply present in AXA (which it summarised as the collection, processing and onward payment of sums of money due from third parties) was specifically excluded from the Article 135(1)(d) exemption as debt collection. In reaching this position, it was noted in the judgment that the phrase debt collection in Article 135(1)(d) covers the collection of debts of any nature, without limiting their application to debts which were not paid on their due date and also cover debts which have not yet become due and which will be paid on the due date.