The European Court of Justice has made judgment in the Axa Denplan VAT case. Axa operates the Denplan dental scheme and makes a charge to dentists for the services that it provides. HM Revenue and Customs took the view that the charge made to dentists was simply for managing the Denplan scheme, and as such, should be subject to VAT. Axa argued that the charge was actually for arranging the transfer of money and should not be subject to the tax.
Lorraine Parkin at Grant Thornton comments; "All the member states making representations at the hearing argued that the type of service provided by Denplan should be subject to VAT. HMRC's success in this case is a significant win for EU wide tax authorities. In agreeing with HMRC's overall position, the ECJ stated that the monthly charges to dentists for transferring payments from the patient's bank account to the dentist's bank account are actually for the provision of a debt collection service. This particular analysis came as something of a surprise. Such services are specifically excluded from exemption under the VAT Directive, and so are subject to the tax. The court's decision means that businesses providing similar services, and particularly those providing outsourced services to the financial services sector, will now be forced to review the nature and VAT liability of their supplies. They will also need to review their contractual arrangements urgently to ensure that they are entitled to charge VAT to their customer if that becomes necessary as a result of today's ruling. Where contracts do not allow for VAT to be charged in addition to the agreed price, the tax charge will have to be met from profits."