VAT: Treatment of Payment Services Clarified

• Shawbrook, a challenger bank, outsourced its loan management process to Target.
• Target handled tasks such as setting up direct debits, processing payments, and dealing with defaults on behalf of Shawbrook. Target exempted these activities
• However, HMRC disagreed and considered them taxable.
• Target lost the case at every stage of litigation, including the Supreme Court.
• The court ruled that Target’s services did not qualify for the payment exemption as they did not involve the transfer of funds and the change of legal and financial situations.
• This decision has implications for businesses relying on the Payment Exemption, making it more difficult for those outside clearing systems to qualify.
• HMRC may now scrutinise other businesses relying on the exemption and challenge those that do not meet the strict conditions set by the Supreme Court.

Source Richard Luckin

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