Tc03058: D P A S Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 22 November 2013 |
| Neutral Citation | [2013] UKFTT 676 (TC) |
| Date | 22 November 2013 |
| Court | First-tier Tribunal (Tax Chamber) |
[2013] UKFTT 676 (TC)
Judge John Brooks
John Walters QC and Conrad McDonnell, instructed by Wilsons Solicitors, appeared for the Appellant
Andrew Macnab and Elizabeth Kelsey, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
VAT - Whether dental payment plan administrator provided services to patient for consideration - Whether these services were exempt or standard rated supplies - If exempt whether change in contractual arrangements from 1 January 2012 amounted to a "Halifax" abusive practice - Appeal allowed.
The First-tier Tribunal upheld an appeal by the taxpayer company against decisions of HMRC that services were not supplied by the company to patients for consideration and, even if they were, that the services must be standard-rated. The tribunal also found that revised contractual arrangements introduced by the company in 2012 did not amount to an abusive practice, which would have required the taxpayer's arrangements to be redefined to restore the position that would have prevailed in the absence of that abusive practice.
The appeal by DPAS Ltd (DPAS) was against a decision of HMRC that supplies of services in relation to the administration of dental plans, were either single, standard-rated supplies of services to dentists or standard-rated supplies of services to dentists and standard-rated supplies of services to the dentists' patients. Although the disputed decision applied to supplies made before and after a change, from 1 January 2012, in the arrangements under which DPAS supplied its services, HMRC decided not to pursue any claim against the company prior to that date.
The tribunal heard that DPAS, the name being an acronym for Dental Plan Administration Services, was established in 1996. Its business was the design and implementation of independent dental plans under which private patients of dental practices could spread the cost of basic dental healthcare evenly throughout the year by way of monthly direct debit payments. Each payment included an amount due from the patient to the dentist, an amount due from the patient to an authorised insurer and a fee payable to DPAS. The company had been registered for VAT from the commencement of its business but, in 2003, following the case of Sparekassernes Datacenter (SDC) v SkatteministerietECAS (Case C-2/95) [1997] BVC 509, it decided that the services provided were predominantly exempt supplies. With the agreement of HMRC, the company successfully claimed a VAT repayment of £133,601 and deregistered from VAT with effect from 31 January 2004. However, in October 2010, the European Court of Justice (ECJ) gave judgment in the case of "Axa")VAT[2011] BVC 35, which concerned Denplan Ltd, the operator of a similar business to DPAS. The court held that those services were specifically excluded from exemption in art. 13B(d)(3) of EC Directive 1977/388 ("the sixth VAT Directive") as being debt collection and, therefore, liable to VAT at the standard rate. As a result of this decision, it was recognised that the VAT basis on which DPAS had operated was no longer sustainable. In July 2011, HMRC agreed to allow businesses to delay the implementation of the decision in Axa until 1 January 2012. In the meantime, DPAS took advice from its advisors and made changes to the structure of its contracts with dentists and patients. The effect of the changes was that, in addition to supplying dental payment plans to dentists, it made some supplies directly to the patients.
There was no dispute that the plan was administered by DPAS on behalf of the dentist and that the service DPAS supplied to dentists was a standard-rated supply. However, three issues arose: whether DPAS also made a supply of services to the patient for consideration; if so, whether that supply was an exempt supply of payment services or a taxable supply of services such as management of the dental plan or debt collection; and, if an exempt supply to patients, whether the change in the contractual arrangements from 1 January 2012 amounted to an abusive practice.
On the first issue, DPAS submitted that from 1 January 2012, in addition to a standard-rated supply of services to dentists it also made a separate supply of services to its patients which was an exempt supply of payment services within VATA 1994, Value Added Tax Act 1994 schedule 9 group 5Sch. 9, Grp. 5, item 1 and eu-directive 2006/112 subsec-or-para 1 article 135art. 135(1)(d) of EC Directive 2006/112 ("the 2006 VAT Directive"). The tribunal agreed. The patients were doing something more than paying for dental services in advance; they were buying, in addition to the dental services, the ability to spread payments, the guarantee of a fixed agreed price for the dental services and other benefits in terms of oral health. It was clear from the acceptance and authorisation forms and the new brochures that the patient was paying for and receiving something more than a supply of dental services from a dentist, namely the administrative and management service of DPAS. Accordingly DPAS did, as a matter of economic and commercial reality, make a supply of services to the patient for consideration.
Having established that DPAS made a supply of services to the patient for consideration, the tribunal turned to the question of whether that supply was an exempt supply or a taxable supply. It considered a number of decided authorities and considered the argument of HMRC that neither the authorisation form nor brochure referred to the registration fee being payable to or charged by DPAS in respect of any services it provided to the patient and, as such, that it could not be consideration for any exempt supply of payment services. However, the tribunal sided with DPAS in finding that the fee was an addition to the consideration which DPAS received for the services provided to patients, similar to an arrangement fee charged by a bank for a loan or overdraft facility, and as such should be treated as an ancillary part of the exempt supply by DPAS.
The final issue for the tribunal was whether the change in the contractual arrangements from 1 January 2012 amounted to an abusive practice, falling within the doctrine enunciated by the ECJ in Halifax v C & E CommrsECAS (Case C-223/03) [2006] BVC 377, requiring the arrangements to be redefined to restore the position that would have prevailed had the abusive practice not taken place. Having found that, under the contractual arrangements in place from 1 January 2012, DPAS did make exempt supplies of payment services to patients it followed that such supplies could not be artificial in nature. Therefore, in the judgment of the tribunal, the contractual arrangements of DPAS from 1 January 2012 did not amount to an abusive practice. The appeal was duly allowed.
A number of interesting points emerge from this decision, not least confirmation that the use of contractual arrangements to specifically avoid a perceived VAT disadvantage can be a legitimate, and not abusive, practice. Having found, as a matter of economic and commercial reality, that, under the arrangements in place from 1 January 2012, DPAS made exempt supplies of payment services to patients, the tribunal was bound to conclude that such supplies could not be artificial or abusive. Significantly, the tribunal held that the present case could be distinguished from Axa because, in that case, the services were supplied to the dentists and were seen by the ECJ to be taxable services of debt collection. Debt collection, by its nature, can only be performed for a creditor, but DPAS did not provide the services to the dentists. The services supplied by DPAS to the patients constituted a transaction concerning payments, which was exempt under eu-directive 2006/112 subsec-or-para 1 article 135art. 135(1)(d) of the principal VAT directive and VATA 1994, Value Added Tax Act 1994 schedule 9 group 5Sch. 9, Grp. 5, item 1.
[1]This is an appeal by DPAS Limited ("DPAS") against a decision of HM Revenue and Customs ("HMRC") contained in a letter, dated 17 April 2012, that supplies of services by DPAS, made in relation to the administration of dental plans, are either single, standard rated supplies of services to dentists or standard rated supplies of services to dentists and standard rated supplies of services to the dentists' patients.
[2]Although HMRC's decision concerned supplies made by DPAS both before and after 1 January 2012 (when there was a change in the arrangements under which DPAS supplied its services), after taking account of correspondence between the parties, the circumstances in which its supplies were treated as exempt and the reasons why DPAS was deregistered for VAT in 2004, HMRC confirmed, by email on 27 November 2012 and in a letter dated 28 November 2012, that it would not pursue any claim that VAT was due from DPAS before 1 January 2012.
[3]In addition to the grounds set out in HMRC's letter of 17 April 2012, Mr Andrew Macnab and Ms Elizabeth Kelsey, who appeared for HMRC, contended that the alteration in DPAS's contractual arrangements from 1 January 2012, if effective, amounted to an abusive practice and as such fell within the doctrine enunciated by the European Court of Justice ("ECJ")1 in Halifax plc v C & E CommrsECAS (Case C-255/02) [2006] BVC 377 ("Halifax").
[4]The case advanced for DPAS by Mr John Walters QC, who appeared with Mr Conrad McDonnell, was that, from 1 January 2012, in addition to a standard rated supply of services to dentists DPAS also made a separate supply of services to their patients which was an exempt supply of "payment services" within Value Added Tax Act 1994 schedule 9 group 5item 1 of Group 5, Schedule 9 to the Value Added Tax Act 1994 ("VATA") and eu-directive 2006/112 subsec-or-para 1 article 135article 135(1)(d) of Directive 2006/112/EC (the...
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