United Kingdom Supreme Court judgment in Target case — Taxpayer loss

Will the payment VAT exemption survive a narrow interpretation?

The Supreme Court (SC) has unanimously dismissed the appeal of Target Group Limited (“Target“) against the court of appeal’s decision that loan administration services Target provided to a bank (including operating loan accounts and processing payments from borrowers) were not exempt from VAT. The SC decided, considering the Court of Justice of the European Union (CJEU) case law, that the payment VAT exemption should be interpreted “narrowly.”

It held that, for the payment VAT exemption to apply, it is necessary to be involved in the actual execution of the transfer or payment, which requires “functional participation and performance.” It is not enough to give instructions to another party, even if it triggers a transfer or payment. Target was merely giving instructions.

The decision is relevant for all UK businesses that are active in the payment sector, from Payment Service Providers (PSPs) and in-house payment entities to e-money and crypto providers and wider payment schemes.

Source Baker & McKenzie

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