HM Revenue and Customs Brief 54/10
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Issued on 12 January 2011
The European Court of Justice (ECJ) Judgment in AXA UK plc
This brief explains the HM Revenue & Customs (HMRC)
position following the ECJ judgment in AXA UK plc (case ref C-175/09).
The case concerned the application of the VAT exemption in 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'
- the Court found that the services in AXA were specifically
excluded from the exemption as ‘debt collection’ and were therefore
liable to VAT at the standard rate
AXA UK plc (AXA) is the representative member of a VAT group
which includes a company Denplan Limited (Denplan). Denplan operates
payment plans on behalf of dentists which offer patients the facility
of paying for dental treatment by way of a fixed monthly charge. It was
the VAT status of one of the supplies made by Denplan to the dentists
in connection with the operation of this plan, ie collecting the
payments using the Direct Debit payment method from the patients’ bank
accounts and accounting to the dentist for any payments received, that
was the subject of the ECJ referral.
Both the VAT Tribunal and High Court agreed with AXA and
found that there was a separate exempt supply of payment services
falling within A135(1)(d). The Court of Appeal, however, decided the
issue was not clear in current law and referred the case to the ECJ for
a preliminary ruling.
The Court of Appeal asked a number of questions of the ECJ,
all focussing in particular on the earlier ECJ judgment in SDC (case
ref C-2/95) and the specific functions a business had to be carrying
out to bring it within the VAT exemption.
The ECJ released its judgment in AXA on 28 October 2010 and,
rather than answering each question individually, decided to consider
all the questions together. The Court found that the supply AXA made to
the dentists (which it summarised as the collection, processing and
onward payment of sums of money due from third parties to the dentists)
was specifically excluded from the A135(1)(d) exemption as ‘debt
The HMRC position
The ECJ judgment in AXA now specifically defines what ‘debt
collection’ means for the purposes of the exclusions to the VAT
exemption. The ECJ says in paragraph 34 of its judgment that:
- '… it is irrelevant that such service is supplied at the
time when the debts concerned become due …'
- it then goes onto say that the words ‘debt collection’ in
- ' … cover 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.'
Following the AXA judgment, therefore, ‘debt collection’
cannot be seen as applying solely to the service of chasing and
recovering overdue payments on behalf of the creditor and all services
principally concerned with collecting payments from the person owing
them for the benefit of the entity to which those payments are owed
(regardless of whether those payments are received before, on, or after
their due date) fall within the exclusion to the exemption and are
consequently liable to VAT at the standard rate.
Supplies which involve the collection of payments as a minor
or ancillary function but which are principally 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, will not be affected by the AXA judgment and will
continue to fall within the VAT exemption.
What this means for businesses
All payment related services falling within the definition of
‘debt collection’ as outlined by the ECJ in the AXA judgment are now
liable to VAT at the standard rate. If this applies to payment related
services supplied by your business and your business has previously
received a ruling from HMRC that those services fall within the VAT
exemption (or it has previously been treating its services as exempt in
line with HMRC’s published policy in this area) then VAT must be
applied to those services from the date of this brief.
Details of how to make any adjustments relating to previous
VAT Return periods can be found in VAT
Notice 700/45 How to correct VAT errors and make adjustments or claims
and from the VAT Helpline on Tel 0845 010 9000.
Where you are in any doubt about the correct VAT treatment
please contact the VAT Helpline on Tel 0845 010 9000.
About the Author
© Crown Copyright 2010.
A licence is needed to reproduce this article and has been republished
for educational / informational purposes only. Article reproduced by
permission of HM Revenue & Customs
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Article Published/Sorted/Amended on Scopulus 2011-01-19 09:06:52 in Tax Articles