Paymex Ltd v HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judgment Date | 26 May 2011 |
| Neutral Citation | [2011] UKFTT 350 (TC) |
| Date | 26 May 2011 |
| Court | First-tier Tribunal (Tax Chamber) |
[2011] TC 01210
[2011] UKFTT 350 (TC)
Judge Roger Berner (Chairman); Mrs Shahwar Sadeque (Member)
Roderick Cordara QC and Edmund King, instructed by Ruffles & Co, for the Appellant
Kieron Beal, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
VAT - Supplies in connection with establishment and supervision of consumer Individual Voluntary Arrangements (IVAs) - Whether exempt supplies of financial services - art 135(1)(d), Principal VAT Directive and Item 5, Value Added Tax Act 1994 schedule 9 group 5Group 5, Sch 9, VATA 1994
1.This is an appeal by Paymex Limited ("the Appellant") as the representative member of a group of companies which includes Blair Endersby Limited ("Blair Endersby") against decisions of HMRC dated 15 August 2007 and 2 October 2007 that supplies made by Blair Endersby in connection with consumer Individual Voluntary Arrangements ("consumer IVAs") are taxable supplies for VAT purposes. The Appellant claims that the supplies are exempt within both the EU legislation, namely Art 13B(d)(3) of the Sixth Directive and Art 135(1)(d) of the Principal VAT Directive, and the relevant domestic legislation (Value Added Tax Act 1994 ("VATA"), Value Added Tax Act 1994 section 31s 31, and Value Added Tax Act 1994 schedule 9 group 5Sch 9, Group 5, item 5).
2.The Paymex group also includes Baines & Ernst Limited ("Baines & Ernst"), which provides debt management services.
3.We had substantial documentary evidence before us and we heard from three witnesses for the Appellant and an expert witness called by HMRC. The three witnesses for the Appellant were: Nicholas Morgan, who is an insolvency practitioner and was part of the senior management team employed by Blair Endersby from May 2005 to 2009; Andrew Wisedale, who has been employed by Baines & Ernst as operations director since 9 February 2004; and Timothy Greenwood, the head of group internal audit for the Appellant since May 2007 who was employed by Baines & Ernst from May 2006 to May 2007 and worked across all the group companies. The expert witness was Norman Cowan FCA, FABRP, MCIArb, MEWI, an insolvency practitioner of Wilder Coe LLP, whose specialist field is insolvency, having taken insolvency appointments since 1980.
4.From this evidence, which included witness statements of the Appellant's witnesses, reports of Mr Cowan, and oral evidence and cross-examination of all the witnesses, we find the following facts.
5.The Individual Voluntary Arrangement ("IVA") procedure was introduced by the Insolvency Act 1986. Modifications were made by the Enterprise Act 2003 to streamline the procedure. It enables an insolvent individual to make a proposal for an IVA with his creditors 1. The arrangement must take the form of a composition in satisfaction of the individual's debts or a scheme of arrangement of his affairs.
6.An IVA will normally include all the debtor's unsecured debts. The rights of secured creditors, such as mortgage lenders, cannot be affected without their consent, and those creditors will accordingly usually remain outside the IVA.
7.The principal benefit of an IVA for a debtor is that it gives him protection against unsecured creditors. If the proposal is approved by 75% in value of the creditors present in person or by proxy voting on the resolution it is binding, subject to any challenge on grounds of unfair prejudice or material irregularity, on creditors who were entitled to vote at the meeting (whether or not present or represented), or who would have been entitled if they had had notice of the meeting.
8.In common with other insolvency procedures, the IVA can only be conducted by a licensed insolvency practitioner ("IP"), licensed either by the Department for Business, Innovation or Skills or by one of a number of recognised professional bodies ("RPBs"). Blair Endersby employs IPs (one of whom, at the relevant time, was Mr Morgan) to enable them to undertake the IVA work; however, much of the background work is done by members of Blair Endersby's staff who are not formally qualified.
9.There are a number of stages to the IVA process, which we shall describe in greater detail below. By way of introduction however, the IP, or members of staff, will collect information from the debtor as to his financial circumstances, advise the debtor as to the best course of action in his particular circumstances and draft the proposal. At the stage when a proposal is ready for submission for approval by creditors the IP acts as a Nominee, with statutory responsibility for making a report to creditors, and at relevant times up to April 2010 to the court, as to whether, in the opinion of the Nominee, the proposal has a reasonable prospect of being approved and implemented. And when a proposal is approved, the Nominee will usually (though not invariably) act a Supervisor of the IVA, at which time his responsibilities are governed by the arrangement. These duties include monitoring the performance of the IVA, collecting payments from the debtor, and accounting to the creditors.
10.Blair Endersby commenced its involvement in the IVA business in 2004, and in 2005 employed its first IPs. Before that time Baines & Ernst had been carrying on a debt management business. Baines & Ernst is a well-recognised name in the field of debt management. It conducted television advertising in the early 2000s. Although in the early stage of its start-up Blair Endersby also sought to develop a high profile, from 2006 the group came to use the Baines & Ernst name to attract business to the group generally, including therefore both debt management and IVAs. Since 2007 there has only been what Mr Wisedale described as a single point of entry under the Baines & Ernst name.
11.Consequently, although there were occasions on which a debtor making enquiries about an IVA would contact Blair Endersby in the first instance, in the main this initial contact was with Baines & Ernst.
12.Initial contact would normally take place by a telephone call made by the individual to Baines & Ernst. Baines & Ernst operated a computerised system for collecting initial information, known as Baines & Ernst Product Selector, or BEPS. This system is designed to record basic information from the individual, including address, occupation, and date of birth, along with the debt position, focussing on unsecured debts, and the debtor's income and expenditure and assets, particularly any equity in property. The system has an algorithm which, following input of all the basic information, will itself set out the options available based on the profile that has been presented. Typically, more than one option, such as bankruptcy, IVA and debt management, will be presented. Baines & Ernst will then discuss with the individual the advantages and disadvantages of those options.
13.If the IVA option is thought to be the most appropriate way to proceed, then as part of this initial telephone contact the Baines & Ernst operative makes a start at completing an IVA application form. This is a form that must be completed and signed by the debtor, but the opportunity is taken in the initial contact for the form to be pre-populated with information taken down by the initial adviser. The form sets out (i) personal details, (ii) a description and value for each debt, including secured debts, the contracted payments for each debt and whether legal proceedings have been commenced, (iii) background information as to when the debtor's financial problems commenced, and the reasons for those problems, and what steps the debtor had already taken to manage his debts, (iv) details of the debtor's home, including financial details for a home owned by the debtor, (v) table of monthly income and expenditure, and (vi) other assets.
14.The work carried out by Baines & Ernst in relation to its IVA service was governed by an Authorisation Form. That form indicated that the service carried out by Baines & Ernst was limited to introducing the debtor to a qualified insolvency practitioner. Once that introduction was made, the form points out that it will be the IP's responsibility to liaise with the debtor and the creditors. Baines & Ernst will liaise with the debtor, the creditors and the IP in order that it can carry out its introduction service.
15.The Authorisation Form sets out what is outside the scope of the services of Baines & Ernst:
4.What we do not do
4aWe do not lend you money or give you any credit facilities.
4bWe do not give you legal advice.
4cWe do not issue payments to your creditors as part of the IVA service.
4dWe do not give you advice on how to, or contact your creditors in order to: restructure your debt repayments; or settle your debts early.
16.The Authorisation Form refers to an Administration Payment which is to be paid by the debtor for the IVA service to be provided under the agreement, calculated from the financial information provided by the debtor. It is used to cover the initial costs of collecting and reviewing the debtor's documentation, liaising with creditors (if this were done) and passing the case to the IP.
17.Following the initial telephone call a Welcome Pack brochure was posted to the debtor, and this included the Authorisation Form. The debtor is asked to return the signed Authorisation Form.
18.The initial information obtained from the debtor in the initial telephone call had to be confirmed and supported by documentation. Baines & Ernst arranged a home visit to enable the IVA application form to be finalised and signed and for documents to be collected. These documents included identification checks for money-laundering purposes, an authority form to enable information to be obtained from creditors by Blair Endersby and a direct debit mandate in favour of Blair Endersby so that, if a payment proposal were...
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