AXA Denplan and VAT exempt payment services revisited

Further questions have been referred to the ECJ concerning the scope of the VAT exemption for transactions concerning payments and transfers in the context of payment administration services provided to a debtor.

This article was also published in the 14 October 2016 edition of the Tax Journal.

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The Advocate General has opined that the supplies by DPAS do not fall within the exemption for payments or transfers: HMRC v DPAS (Case C-5/17). For a review of the opinion, see “DPAS: VAT exempt payment payment services revisit”.

The Upper Tribunal has referred questions to the European Court of Justice (ECJ) concerning the VAT treatment of supplies of services by a dental payment plan administrator to dental patients: DPAS Ltd v HMRC [2016] UKUT 373. The Tribunal considered that it was not clear whether DPAS’s services qualified as “transactions concerning payments or transfers” or, if they did so qualify, whether they were excluded from exemption as “debt collection”.

In particular, the Upper Tribunal was concerned that it was difficult to reconcile the decision of the ECJ in the recent Bookit/NEC case, requiring a narrow, functional analysis of the exemption, with the statement in the earlier AXA Denplan decision that Denplan’s services in recovering payments for dentists would, in principle, have been exempt had it not amounted to debt collection.


In 2011, the ECJ held that supplies made by Denplan, a dental plan administrator, to dentists were excluded from exemption as “transactions concerning payments or transfers” as those services amounted to “debt collection”. The fact that Denplan collected payments as they fell due meant that they were collecting debts on behalf of the dentists. A debt did not have to be overdue for collection to amount to “debt collection” for the purposes of the VAT exemptions. For further details, see “Payment handling amounts to taxable debt collection”.

DPAS is another company providing dental plan services. Following this decision, DPAS decided to restructure its contractual arrangements to ensure that its plan administration services were provided to the dental patients rather than to dentists. As a result of this restructuring, it contended that its supplies of services to patients, for which it charged a plan fee, qualified as exempt provision of transactions concerning payments. Its supplies to patients were, essentially, payment facilitation involving collection direct debit payments and paying on plan fees to the dentists. In addition, since this supply was made to patients, rather than to the creditor dentists, it could not amount to excluded “debt collection”. The First-tier Tribunal (FTT) agreed with DPAS and held its services were correctly exempted from VAT, see “Restructuring existing arrangements to avoid unnecessary VAT is not abusive”.

On appeal, the Upper Tribunal held that the supplies made by DPAS were correctly regarded as made to dental patients. The Tribunal concluded that (except in relation to existing patients who did not sign and return acceptance of the new contractual arrangements), DPAS provided a service of ensuring that money was taken by direct debit from the patients’ accounts and passed, after deduction of DPAS’s fees, to the dentists and the insurer. In addition, those services were correctly viewed as management and administration separate from and more than the dental services supplied by the dentists. The fact that, apart from the contractual arrangements, the services did not change their character from the earlier (non-exempt) services, did not change that conclusion.

However, the Upper Tribunal held over its decision on the correct VAT treatment of those services pending the ECJ decisions in Bookit and NEC. For details of the ECJ decision in those joined cases, see “VAT and payment processing services”.

Upper Tribunal

Following the ECJ decision in Bookit/NEC, the case has now returned to the Upper Tribunal and the Upper Tribunal has decided that a further reference to the ECJ is necessary to clarify the scope of the VAT exemption for payments and transfers and the exclusion for debt collection.

As regards the scope of the exemption, DPAS argued that the original ECJ decision in AXA Denplan accepted that the supplies of collecting direct debit payments and administering the payment plan amounted in principle to transactions concerning payments and transfers. That conclusion was not affected by the Bookit/NEC decision. Furthermore, the services provided by Denplan were materially indistinguishable from those provided by DPAS save for the fact that Denplan supplied its services to the dentists, which is why they could be characterised as debt collection whereas DPAS supplies its services to the patients. DPAS also argued that, as a direct debit originator, it actually effects transfers of funds unlike Bookit and NEC which merely provided information that caused others to make payments.

In contrast, HMRC contended that the decision in Bookit/NEC had materially narrowed the scope of the exemption.
In particular, HMRC submitted that the functional analysis of the transactions made clear that DPAS did not effect any transfers or payments. DPAS’s activity is functionally the same as Bookit and NEC in that it requests payments under the authority of a mandate from the patient to the patient’s bank. It is the banks that actually effect the transfers. DPAS merely carries out administrative tasks for moving money between bank accounts, and recording what transfers have been made by others. DPAS does not itself debit or credit the respective bank accounts. In this context, HMRC contended that the Bookit/NEC judgment made clear that an intermediary which calls on other financial service providers to effect transfers between bank accounts does not make a supply of transactions concerning transfers in its own right.

The Upper Tribunal considered that it could not make a judgment between those rival submissions without further guidance from the ECJ. Whilst acknowledging that the AXA Denplan decision lends strong support to DPAS’s case, the Upper Tribunal also acknowledged that the ECJ’s analysis of the limitations of the exemption in Bookit/NEC appeared equally applicable to DPAS’s supplies. This tension between the decisions in AXA Denplan and Bookit/NEC meant that the Upper Tribunal was unclear as to the correct approach.

Furthermore, the Upper Tribunal considered that there is “real doubt” as to the scope of the exclusion for debt collection. In particular, it was unclear whether, objectively, the same type of activities undertaken by Denplan in providing services to dentists and which constitute debt collection cease to constitute debt collection when undertaken by DPAS in providing services to patients. HMRC contended that it is the nature of the services that is determinative, rather than the person supplying or receiving them. DPAS argued that, by its very nature, debt collection services can only be provided to the creditor. As a result, the Upper Tribunal has also decided to refer to the ECJ the question of the correct construction of “debt collection” in this context.


It may have been thought that the ECJ decision in Bookit/NEC may have brought some much needed clarity to the scope of the exemption for transactions concerning payments and transfers. This referral shows, however, that doubts as to the scope of the exemption continue, as well as the extent of the “debt collection” exclusion.

In particular, the fact that in AXA Denplan, the ECJ specifically stated in relation to Denplan’s services that, “as a matter of principle, that service constitutes a transaction concerning payments which is exempt under Article 13B(d)(3) of the Sixth Directive, unless it is "debt collection or factoring"” is difficult to reconcile with the functional analysis adopted in Bookit/NEC. As such, further guidance from the ECJ will be keenly awaited in the circumstances.

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