VAT: Paypoint Collections Ltd & Paypoint Network Ltd – FTT decision

VAT: Paypoint Collections Ltd & Paypoint

The taxpayer has been successful in arguing that its services are taxable and not exempt as argued by HMRC.

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Paypoint Collections Ltd (Collections) and Paypoint Network Ltd (Network) are wholly owned subsidiaries of Paypoint plc, an international payment solutions provider. The supplies made by the taxpayers include payment services for utilities and mobile phone services seen in retail outlets across the country. Network contracts with agents (i.e. the retail outlets) and primarily deals with the operation of the electronic payment system. Collections enter into separate contracts with the agents, and facilitates the onward settlement of money to its clients (i.e. the utility companies or telecom providers). It was agreed between the parties that pre-payment services supplied by Network are standard-rated. It was also agreed that the services supplied by Collections are standard rated. The main dispute concerns post-payment services supplied by Network. HMRC considered these were exempt under VATA 1994 Schedule 9 Group 5. However, the First-tier Tribunal (FTT) found for the taxpayer, concluding that Network’s services were also standard rated.

The dispute arose following HMRC’s liability ruling issued at the end of 2014, which applied the following VAT treatment prospectively with effect from 2 March 2015:

  1. Post-payment services supplied by Network are exempt under Item 1 of Group 5 of Schedule 9 to the VATA 1994;
  2. Pre-payment services supplied by Network are standard rated; and
  3. Services supplied by Collections constitute debt collections and are standard rated.

There was no dispute in terms of 2). In terms of 3) the parties agreed that the supplies by Collections were standard rated. However, HMRC considered this was because they were debt collection services and presumably, the taxpayer considered that the supplies in question were simply outside the scope of the exemption. The main dispute concerned 1) - the post payment services supplied by Network.

Post payment services supplied by Network
The parties agreed that the appeal should be determined by reference to draft sample contracts which the FTT considered reflected the economic and commercial reality. HMRC argued that the supply is of a payment system to its clients in return for fees and should be exempt. The FTT concluded that the obligations of Network to its clients is to ensure that the Paypoint network works and the required information is passed to the clients. The FTT agreed with the taxpayer that it was clear from the contracts that where a customer hands over payment, this is done by the agent on behalf of the client and not Network. The FTT added that the role of Network is to extract and transmit data from terminals to the client. The service of collecting and transferring payments is supplied by Collections.

Turning to the VAT treatment of Network’s supply, the FTT considered numerous cases on the payment processing exemption under Article 135(1)(d) of the VAT Directive and summarises the relevant principles in para 64. The FTT concluded that when a customer hands over payment there is the required change in the legal and financial position between customer and client. However, having concluded that the payment is received on behalf of the client, the service by Network does not have the effect of transferring funds from a customer to the client. The service cannot therefore fall within the exemption and is standard rated.

Services supplied by Collections
The FTT concluded that it was not required to consider whether such services were debt collection as this point was academic i.e. both parties agreed the supplies were standard rated, albeit for different reasons.

For further information please contact:

Karen Killington

Steve Powell


 

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