HMRC released Revenue and Customs Brief 54/10 on 12 January 2011 outlining the position they have taken following the AXA/Denplan ECJ decision, which dealt with the VAT treatment of payment processing fees. 

Denplan operates payment plans for dentists whereby patients pay regular monthly sums by direct debit for dental treatment.  Denplan treated the service it supplied to the dentist as being a VAT exempt payment processing fee.  The ECJ arrived at an unexpected decision, in deeming the fee to be for Denplan providing standard rated debt collection services, even though the fees being collected were not aged debts.  The decision was viewed as potentially being far more wide reaching than intended, possibly impacting banks and businesses such as BACS. 

It is also perhaps surprising that HMRC have issued their guidance so soon after the decision and it is fair to say that the Brief raises as many questions as it answers.   It introduces the concept of charges still being VAT exempt provided they involve the collection of payments as an ancillary or a minor function of a larger payment related transaction.  The Brief states that this excludes the movement and settlement of payments between bank accounts.   

Given the number of industries this potentially impacts outside of the financial services sector, including the travel, ticketing and charity giving sectors, it appears uncertainty will continue to exist for some time to come. Businesses making supplies of this nature would be well advised to consider whether they are certain they are applying the correct VAT treatment given the material difference between VAT exemption and a standard rate of 20% and being partially or wholly exempt versus fully taxable. 

If you have any queries in relation to this issue you can contact Julie Park by email: julie.park@thevatconsultancy.com or call her on 01962 735350.