ECJ decides card handling fees are not VAT exempt
Ryan Bevan 6 June 2016 No comments
The European Court of Justice (ECJ) has recently released its judgments in two UK cases concerning the VAT liability of debit and credit card handling fees – National Exhibition Centre Limited (NEC) (C-130/15) and Bookit Limited (C-607/14).
The key issues in these cases centred around whether the services provided by NEC and Bookit amounted to VAT exempt payment processing services or were in fact the provision of financial information which is taxable.
In both cases the ECJ decided that the booking fees charged to customers making advance bookings for concert and cinema tickets on debit and credit cards are taxable and do not qualify for VAT exemption.
The questions considered by the Court concerned the scope of the payment processing exemption including, the permissions required for a service to constitute ‘payment processing’, factors that distinguish an information service from a true payment service and whether in order to qualify for exemption it is necessary for the supplier to exercise control over the parties’ bank accounts, making the necessary debt and credit adjustments.
In its judgments the ECJ drew a clear distinction between the execution of a payment and tasks which are preparatory to it. The ECJ found that whilst exemption can apply to the payment execution service itself, anything which falls short of that should be treated as taxable. This indicates that the issue and communication of payment authorisation codes and payment instructions is not sufficient for there to be an exempt supply and should be treated as a provision of information. Businesses therefore involved in creating and transferring payment files are not providing the underlying payment function; this is done by the party in the supply chain which actually moves the money and effects the change in the legal and financial relationship between the parties.
These judgments are likely to have an impact on any business which currently exempts payment handling fees and similar services. Such businesses should be prepared for a challenge by HMRC, especially in cases where the business does not actually move money or make appropriate debits and credit entries. It will also be necessary to reconsider whether VAT exemption continues to apply where these types of services have been outsourced. Exempt businesses which have outsourced these services may well find themselves suffering higher VAT costs in future. These judgments need to be considered carefully in the context of other existing EU and UK precedents, such as the SDC and FDR cases which state that exemption should be available.
It will be interesting to see what guidance HMRC issue in light of these judgements and how widely they see the decisions applying.