VAT planning lives on: restructuring of contracts to avoid VAT held not to be abusive in DPAS Ltd v HMRC

In Axa UK (Taxation) [2010] EUECJ C-175/09, the Court of Justice held, surprisingly to many commentators, that a company’s services of invoicing and collecting payments from patients that are not overdue, and passing them to dentists, were not exempt from VAT because they constituted taxable debt collection under what is now article 135(1)(d) of the Principal VAT Directive 2006/112/EC.

Following that decision, in the recent case of DPAS Ltd v HMRC [2013] UKFTT 676 (TC), the First-tier Tribunal (FTT) has held that DPAS’s supply of payment services to the patients directly could not be a taxable supply of debt collection services, since the patients obviously were not creditors to whom the payments were owed. Instead, the FTT found that the supplies were ‘transactions concerning payments’ that were exempt from VAT. The FTT also held that the restructuring by a taxpayer of its business with the purpose of avoiding a VAT disadvantage was not abusive…

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