HM Revenue and Customs v Axa Uk Plc

JurisdictionEngland & Wales
JudgeLady Justice Arden,Lord Justice Rimer,Mr Justice Ryder
Judgment Date20 December 2011
Neutral Citation[2011] EWCA Civ 1607
Docket NumberCase No: A3/2008/1388
CourtCourt of Appeal (Civil Division)
Date20 December 2011

[2011] EWCA Civ 1607





Royal Courts of Justice

Strand, London, WC2A 2LL


Lady Justice Arden

Lord Justice Rimer


Mr Justice Ryder

Case No: A3/2008/1388

The Commissioners for Her Majesty's Revenue and Customs
Axa Uk Plc

Raymond Hill (instructed by Solicitor for Her Majesty's Revenue & Customs) for the Appellant

Jonathan Peacock QC (instructed by Forbes Hall LLP) for the Respondent

Hearing dates : 5–6 December 2011

Lady Justice Arden

This adjourned appeal is from the order of Henderson J dated 22 May 2008 and it concerns the effect of the "finance exemption" from VAT contained in Group 5, item 1 of schedule 9 to the Value Added Tax Act 1994 ("the VATA"). The provision of the Sixth VAT Directive (Council Directive 77/388/EEC, "the Directive") from which Group 5, item 1 is derived contains a limitation, or (as counsel have termed it) a "carve out", from that exemption for "debt collection" but that carve out does not form part of the wording of Group 5, item 1.


This appeal has had a most unusual history. At the first hearing, this court (Rix, Jacobs and Lawrence Collins LJJ) made an order, dated 8 April 2009, referring certain questions for a preliminary ruling to the Court of Justice for the European Communities ("the Court of Justice"). That order sought the answers to certain specific questions about the exemption (other than the carve out) addressing doubts which this Court had as a result of certain jurisprudence of the Court of Justice concerned with the wording of the exemption in relation to the transfer of payments. In its answer, the Court of Justice treated the questions as raising the general issue of the applicability of the exemption and it answered the questions by holding that the exemption did not apply in circumstances in which certain features of the supply of services in this case were present. It is now common ground that it was open to the Court of Justice to reformulate the question, but the result of the ruling was that the respondent ("Axa"), which had won below, was by this ruling cast into the role of an appellant. Axa complains that this was unfair since the carve out was not raised before the Court of Justice by the parties and had not been relied upon by HMRC at any point in the domestic proceedings. The carve out had been raised initially by other governments, which filed submissions on the reference. Axa had had only a limited opportunity, of which it availed itself, to put in oral submissions on the point. Axa does not, however, suggest that it has any remedy in respect of that alleged unfairness in this court. No doubt that is one of the risks which parties face when there is a reference.


However that may be, this court has received the answer to the questions which it referred to the Court of Justice and the points at issue are now different ones. I shall set those out in this judgment and proceed on the basis as if the respondent were the appellant and the appellant ("HMRC") were the respondent, not least because the parties took on that role-reversal before us at the hearing.


We have not been taken to any part of the judgment of the judge, and accordingly, without intending any disrespect, I shall take the unusual course of not referring to it in any detail. Likewise I shall not be referring to any of the lengthy grounds of appeal originally filed by HMRC.

Legal context


Under Article 2(1) of the Directive, "the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such" is to be subject to VAT.


The finance exemption is contained in article 13B(d)(3) of the Directive, which provides:


B. Other exemptions

Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse:

(d) the following transactions:

3. transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection and factoring;



The Directive has been superseded by Council Directive 2006/112/EC (known as the "Principal VAT Directive"), which came into force on 1 January 2007, but the taxable events in issue on this appeal precede that date. The Principal VAT Directive largely restates the provisions of the Directive. Article 135 (1)(d) contains the finance exemption. This is in the same terms save that in the English version the words "and factoring" are omitted. In Case C-305/01 Finanzamt Groß-Gerau v MKG-Kraftfahzeuge-Factoring the Court of Justice held that this omission was not material and that factoring was within the expression "debt collection".


The exemption provided for in Article 13B(d)(3) of the Directive was implemented in the United Kingdom in the form of Group 5, item 1 in schedule 9 to the VATA. This does not simply copy out the finance exemption but transposes it in the following terms:

"The issue, transfer or receipt of, or any dealing with, money, any security for money or any note or order for the payment of money."


As I have already indicated, nothing is stated in Group 5, item 1 about either debt collection or factoring.

The underlying dispute


Axa is the representative member of a VAT group of which Denplan Ltd ("Denplan") is a member. The dispute arises from HMRC's refusal of a claim for overpaid VAT for the periods of March 2002 to December 2004, and assessments raised by HMRC in respect of the periods from March 2005 to March 2006.


It is sufficient for the purposes of this judgment to take the outline of facts contained in Axa's skeleton argument.

"10. Denplan's services fall into four categories. First, Denplan operates a membership scheme ("Membership") under which dentists pay a one off membership fee (taxable at the standard rate) in order to become entitled to a number of benefits (and also subject to certain obligations) (Tribunal Decision, paragraph 3 (3)).

11. Second, Denplan provides a registration service ("Registration") under which dentists pay a one-off fee (Taxable at standard rate) to Denplan for setting up and administering a register of patients on behalf of the dentist (Tribunal Decision, paragraph 3 (4)). Under the Registration scheme, Denplan maintains a comprehensive database of all dentists' patients and provides information from the list as and when requested by the dentists. Denplan also assists in recording the patient's name, address, dental records and other necessary details in a database and keeping these up-to-date with amendments as and when they arise.

12. Third, Denplan provides payment handling services ("Payment Handling") in respect of payment plans. Under these plans a patient will agree with his or her dentist to pay particular monthly amounts in return for a certain level of dental care each year. Denplan agrees with the dentist to collect the payment from the patient and transfer the payment to the dentist. Denplan charges the dentist a fee (on average 71p per monthly payment) for collecting and paying over such sums (Tribunal Decision, paragraph 3(5), (6)): this is the fee in dispute for VAT purposes.

13. In return for this fee, paid by the dentist, it is now common ground that Denplan: (1) obtains and retains the authorisation to take money from the patient's account via the direct debit authorisation forms; (2) validates the patient's bank account data via its internal systems; (3) instructs the patients' banks, via BACS, to pay monthly charges directly to Denplan on behalf of the dentists: (4) verifies and reconciles the records of each BACS transfer: (5) allocates the payments to the relevant dentist and produces monthly reports and statements of accounts for the dentist to ensure he/she is aware of their financial position: (6) instructs its own bank, via BACS, to make payment from Denplan to each of the dentists; and (7) informs patients and dentists of failed or unpaid fees (Tribunal Decision, paragraph 3 (5), (8)).

14. Fourth, Denplan provides other, primarily advisory, services to dentists in return for specific fees, again taxable at the standard rate."

The issue


Denplan contends that the provision of the Payment Handling service (see paragraph 12 set out in paragraph 9 above) to dentists in return for a separate fee of, on average, 71p per transaction falls under the finance exemption.


HMRC contend that this is not so on the basis that the Payment Handling service is not exempt.

The decision of the Tribunal


By its decision dated 12 September 2007 the Tribunal (Dr John F Avery Jones CDE and Ruth Watts Davies MHCIMA FCIPD) decided that, at least in large part (subsequently agreed to be 90.18%), the fee charged by Denplan was exempt from VAT. Henderson J endorsed the conclusion of the Tribunal and, subject to minor qualifications not now material, also the reasoning of the Tribunal. HMRC appealed from his decision to this court.

The events leading to the reference to the Court of Justice for a preliminary ruling


As already explained, at the original hearing of this appeal this court made an order dated 8 April 2009 for a reference for a preliminary ruling to the Court of Justice. There was an oral hearing before the Court of Justice on 3 June 2010 and the Court of Justice gave judgment of 28 October 2010 (judgment in Case...

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