Revenue And Customs v AXA UK Plc

The domestic VAT finance exemption must be interpreted to give effect to the whole of the corresponding European Union provision, including its exclusion for debt collection and factoring. The absence of express words in the implementing provision does not prevent a conforming interpretation where Parliament intended to implement the Directive. The Court of Justice determines the autonomous European Union meaning of the exclusion and may characterise the relevant supply on the referred facts. A payment-handling service may therefore fall outside the exemption where it is properly regarded as debt collection, even though it is not debt collection in the ordinary domestic sense and involves no coercive enforcement.

Axa was the representative member of a VAT group including Denplan, which provided dentists with services for collecting monthly patient payments and transferring them to the dentists. The VAT and Duties Tribunal held that approximately 90.18% of the disputed fee was exempt. Henderson J endorsed that conclusion, and HMRC appealed.

On the first hearing, the Court of Appeal referred questions to the Court of Justice. In its judgment in Case C-175/09 dated 28 October 2010, the Court of Justice held that the services fell within the debt-collection exclusion in the finance exemption. The issues before the Court of Appeal were whether the domestic provision implemented that exclusion, whether the Court of Justice had correctly characterised the supply, and whether a further reference was required.

The Court of Appeal allowed HMRC’s appeal and substituted an order that no part of the services in question fell within the finance exemption.

1. Domestic implementation. Arden LJ held that Group 5, item 1 of Schedule 9 to the Value Added Tax Act 1994 implemented the whole of article 13B(d)(3) of the Directive, including the debt-collection and factoring exclusion. The court was required to read the domestic provision with the European Communities Act 1972 so as to comply with the United Kingdom’s European Union obligations. No specific indication that Parliament intended to implement the exclusion was required. The court was not being asked to make a policy decision. Uncertainty about the precise scope of the exclusion was no reason to refuse a conforming interpretation.
2. Characterisation of the supply. The exemption and exclusion were mutually exclusive. Whether a transaction fell within one or the other depended on its precise facts and true legal character. The expressions in article 13B(d)(3) had autonomous European Union meanings. The Court of Justice was entitled to characterise the referred supply as debt collection, even though it involved payment handling, debts that were not in default, and no coercive enforcement. Rimer LJ agreed that the characterisation was properly a matter for the Court of Justice. Ryder J agreed with both judgments.
3. Application and further reference. The facts had been found by the Tribunal and were adequately summarised in the reference and the Court of Justice’s judgment. The Court of Justice had understood the service as payment handling for the benefit of dentists and had nevertheless concluded that it came within the exclusion. There was no basis for further adjudication or a further reference.
4. Practice guidance. Arden LJ stated, obiter, that after receiving a preliminary ruling the Court of Appeal should ordinarily give directions for the future conduct of the appeal, including an agreed list of issues and sequential skeleton arguments where appropriate.

1. Court of Appeal (Civil Division) — [2011] EWCA Civ 1607: allowed HMRC’s appeal and ordered that no part of the services fell within the finance exemption.
2. Court of Justice of the European Communities — judgment in Case C-175/09, 28 October 2010: held that the service fell within the debt-collection exclusion in article 13B(d)(3).
3. High Court of Justice (Chancery Division) — Henderson J, order dated 22 May 2008: endorsed the Tribunal’s conclusion that the disputed fee was exempt.
4. VAT and Duties Tribunal — decision dated 12 September 2007: held that approximately 90.18% of the fee was exempt.