VAT – Debt collection services
On 12 January HMRC announced they were changing their view what should be defined as ‘debt collection services’ following the judgement in the case AXA UK plc (case ref C-175/09). This could affect any taxpayers whose business involves collecting money on behalf of another organisation, even if the money is never overdue as such.
Financial services are generally exempt from VAT, with the exception of debt collection services which are subject to standard rate VAT. AXA UK Plc was the VAT representative company of a group that includes Denplan Ltd. Denplan collects monthly fees from dentist patients and pays them to their dentists. The European Court of Justice concluded that this action amounted to debt collection services, even though the money was collected at exactly the date it became due, so the amounts paid were not outstanding debts.
The result is that from 12 January 2011 any service that collects payments from one person to pay them on to another person to which the money is owed, will be subject to standard rate VAT. This applies even where the business concerned has previously received a ruling from HMRC that their fees collection service was exempt from VAT.