Supreme Court Decision Impacts VAT Treatment of Payment Processing Services in the UK

• The Supreme Court has ruled in favor of HMRC in the “Target Group Ltd v HMRC” VAT case, stating that the conditions for VAT exemption were not met.
• This decision will make it more difficult for businesses involved in payment processing to claim VAT exemption.
• HMRC is expected to review businesses providing payment services and challenge whether VAT should be charged.
• This will impact businesses in the financial services sector, including merchant acquirers, payment services providers, in-house payment entities, ATM operators, and outsource providers.
• Target argued that its services qualified for VAT exemption under Article 135(1)(d) of the EU VAT Directive, but HMRC disagreed.
• The First-tier Tribunal, Upper Tribunal, and Court of Appeal all ruled in favor of HMRC.
• The Supreme Court held that issuing instructions for payment does not qualify as an exempt supply, and accounting entries in loan accounts do not fall within the exemption either.
• Target’s appeal failed, and its supplies are now taxable to standard rate UK VAT.
• HMRC is likely to review activities performed by payment companies relying on the payment exemption and raise assessments if the conditions are not met.

Source: haysmacintyre.com

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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