On 28 October, The European Court of Justice (ECJ) issued a decision on the VAT treatment of AXA's payment plan under the Denplan arrangements. The ECJ overturned the decisions of the VAT Tribunal and the High Court by ruling that the service of collection and processing of monthly payments from patients and transferring those to dentists (after the deduction of AXA's fee) was a standard rated supply of 'debt collection services' and not an exempt 'payment or transfer'.
The main element of the Denplan service is the operation of payment plans between dentists and their patients. Under the plan, dentists provide their patients with a particular level of dental care against payment by the patient of a fixed monthly charge to Denplan. Denplan collects the payments due from the patients and, having deducted its fee in collecting the money for the dentist, accounts to the dentist for the payment collected.
The ECJ held that such a service amounted to debt collection (a standard rated supply for VAT) and not a "transaction ... concerning payments and transfers" (which is exempt from VAT). In reaching this conclusion, the ECJ found that the meaning of 'debt collection' in the VAT Directive was not limited to debts in respect of which the debtor had already defaulted and can include debts which have not become due, will be paid on the due date and where no coercive measures will be taken for the effective payment of the debt concerned.
Legal firm Blake Lapthorn advises, “Businesses providing or receiving similar services to Denplan, particularly those providing outsourced services to the financial services sector, will need to review the VAT liability of their supplies. Dentists who are registered with Denplan should review their contractual arrangements urgently to determine whether the agreement entitles Denplan to charge VAT. Where contracts do not allow for VAT to be charged, dentists should review carefully the VAT provisions of any renewal contracts. Where the contracts do allow VAT to be charged, dentists can expect to start being charged VAT by Denplan. Those supplying or receiving similar services should also review the VAT provisions of their contractual arrangements."
Denplan Finance Director Steve Cross commented: “As most dentists are aware, they are not registered for VAT and as such this case is irrelevant to them and any agreements with Denplan. VAT is a cost to Denplan and Denplan was attempting to recover VAT incurred in the past. The outcome of this case does not affect the charges Denplan makes to dentists or will be making in the future.”