VAT: DPAS Ltd – Further Upper-tier Tribunal Decision | KPMG | UK
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VAT: DPAS Ltd – Further Upper Tribunal Decision

VAT: DPAS Ltd – Further Upper Tribunal Decision

The Upper-tier Tribunal has released its follow up decision confirming that a reference to the CJEU is required on the meaning of debt collection in Article 135(1)(d).


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DPAS administered dental plans, whereby a patient paid DPAS a fixed sum each month by direct debit to cover the costs of their dental maintenance and insurance cover for emergency treatment. After deducting its fee and the insurance premium, DPAS paid the rest of the money collected over to the dentists. A £10 registration fee was added to the first payment. As a result of the Court of Justice of the European Union (CJEU) decision in Axa UK (C-175/09), DPAS’s supplies would have been wholly standard rated with effect from 1 January 2012 as debt collection services supplied to the dentists. To avoid this VAT treatment, DPAS restructured its supplies. It changed the contracts in January 2012 to create two supplies: A taxable contract with the dentist, and an exempt payment handling contract with the patient. The original First-tier Tribunal (FTT) found for the taxpayer. HMRC appealed to the Upper Tribunal (UT).

The UT’s first decision
On appeal the UT in its first decision found:

  • The new arrangements and corresponding VAT treatment could not apply to existing customers that failed to return an acceptance form (taxpayer loss);
  • The £10 registration fee paid by customers could not be ancillary to an exempt supply but was a separate standard rated supply (taxpayer loss); and
  • The arrangements could apply to existing customers that returned the acceptance form and to new customers and the arrangements were not abusive (taxpayer win).

The questions concerning whether the supply to customers fell within the payments exemption or whether the services were excluded from exemption as supplies of debt collection were stayed awaiting the CJEU judgments in Bookit and NEC. Following these judgments the parties made written submissions.

The UT’s second decision
The arguments were as follows:

NEC & Bookit Judgments have not provided the answers as they concern card handling, not direct debits DPAS activity is functionally the same so the same VAT liability should apply as in NEC/Bookit.
In Axa, the services were exempt transactions concerning payments, and were excluded from exemption only because they were debt collection, which is a specific exclusion in the law.
DPAS’ services are the same as those in Axa but cannot be debt collection where the supply is to the patient (the debtor) and not the dentist (creditor). Therefore, the supply must be exempt.
DPAS cannot rely on Axa, because the supplies by it are to the customers and not the dentists so the facts are different.
As a direct debit originator it does effect transfer of funds. DPAS carries out administrative tasks and instead it is the banks that transfer the money.

The UT has now concluded that a reference to the CJEU is required. To access the decision click here.

The decision clearly sets out the difficulty of determining the scope of the exemption and even refers to the tension between Axa, NEC & Bookit. Clear guidance on the meaning of debt collection and the scope of the payment exemption is important.


For further information please contact :

Karen Killington 

Steve Powell

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