The VAT exemption for financial services is a technically difficult area, affecting a wide range of taxpayers in the financial services industry.
On 15 March 2013, we reported two contrasting cases relating to the exemption for investment fund managers. The new RDR rules which came into effect this year for IFAs prompted HMRC to amend its guidance on when VAT advice could be exempt. There have also been recent cases at European and domestic level on the exemption for portfolio investment services, amongst others.
In National Exhibition Centre Ltd v Revenue and Customs Commissioners ( UKFTT 289 (TC), published 17 May 2013) the subtle distinctions between exempt and taxable services were highlighted once again. The taxpayer helped to sell tickets for events and had three income streams: facility fees (charged to the event promoter), transaction fees (charged to the customer) and booking fees (also charged to the customer). The transaction fees were for the administration involved in issuing a ticket, whilst the booking fees were for handling credit card transactions.
HMRC brought three arguments against the exemption for the booking fees services, involving agency rules, mixed supply rules and debt-collection rules.
- Booking fee services were part of the promoter’s services, or
- Booking fee services were part of an administrative service supplied by the taxpayer, or
- Booking fee services was debt-collection.
In its first argument, HMRC reasoned that the taxpayer was acting as agent for the promoter in receiving fees from the customers. Booking fees would therefore be standard-rated as part of an overarching supply of tickets by the promoter. The Tribunal considered the evidence, noted that appropriate contractual and practical steps had been taken by the taxpayer, and concluded that it was not acting as agent for the promoters in respect of the transaction fees and the booking fees.
In its second argument, HMRC reasoned that the taxpayer’s payment handling services were part of an overarching, standard-rated supply by the taxpayer of an administrative ticket-booking service. In finding that the credit card handling services were a separate supply, the Tribunal distinguished other services performed by the taxpayer such as advice on seating, observing that these were performed freely whether or not a ticket was purchased by the customer.
In its final argument, HMRC reasoned that the collection of money from customers on behalf of the promoter was nothing more than the collection of a debt. Debt collection is expressly excluded from the financial services exemption, so this would be a standard-rated supply. The Tribunal again dismissed HMRC’s reasoning, stating that “to describe [the booking fees service] as a service of debt collection is an artificial analysis of a straightforward situation”.
In summary, the taxpayer’s booking fees were exempt as payment handling services. However, the challenges brought by HMRC were supported by similar cases where the taxpayers had been found to be making standard-rated supplies. Businesses in the financial services industry should consider carefully the detail of their transactions before concluding which supplies could be defended as qualifying for exemption.