Ruling means businesses could be liable for further VAT charges
The European Court of Justice has ruled against AXA in the ‘Denplan VAT’ case.
In the UK, Axa operates the Denplan dental scheme, charging UK dentists for the services that it provides.
HM Revenue and Customs (HMRC) argued that the charge made to dentists was simply for managing the Denplan scheme, and as such, should be subject to UK VAT.
Axa argued that the charge was for arranging the transfer of money and should not be subject to the tax.
Lorraine Parkin, head of VAT at Grant Thornton UK said: "In agreeing with HMRC's overall position, the ECJ stated that the monthly charges to dentists for transferring payments from the patient's bank account to the dentist's bank account are actually for the provision of a debt collection service. This particular analysis came as something of a surprise to everyone. Such services are specifically excluded from exemption under the VAT Directive, and so are subject to the tax."
Parkin continued: "The Court's decision means that businesses providing similar services, and particularly those providing outsourced services to the financial services sector, will now be forced to review the nature and VAT liability of their supplies.
“They will also need to review their contractual arrangements urgently to ensure that they are entitled to charge VAT to their customer if that becomes necessary as a result of today's ruling. Where contracts do not allow for VAT to be charged in addition to the agreed price, the tax charge will have to be met from profits," she added.
