JPMorgan Chase Bank, NA v The Commissioners for HMRC
[2023] UKFTT 856 (TC)
Target Group Ltd v Commissioners for His Majesty's Revenue and Customs
11 October 2023
[2023] UKSC 35
Supreme Court
Target helps Shawbrook collect loan payments. They argued this service was tax-free. The court said no. Just giving instructions to move money isn't the same as actually moving the money; only moving the money itself is tax-free.
Key Facts
- •Target Group Ltd (Target) provides loan administration services to Shawbrook Bank Limited (Shawbrook), including operating loan accounts and processing payments from borrowers.
- •The issue is whether these services are exempt from Value Added Tax (VAT) under article 135(1)(d) of the Principal VAT Directive (PVD), which exempts transactions concerning payments, transfers, debts (but excludes debt collection).
- •Target argues its services fall within the exemption because it instructs payments from borrowers to Shawbrook via BACS, and updates loan accounts.
- •HMRC contends the exemption only applies to the execution of payment orders, not the prior instruction.
- •Target's services include generating BACS files for direct debits, processing various payments, calculating interest and fees, handling arrears, and managing overpayments.
- •Lower courts ruled against Target, holding that instructing payments is a preparatory step, not execution.
Legal Principles
VAT exemptions in the PVD must be interpreted strictly.
PVD and Court of Appeal judgment
A 'strict' construction doesn't equal a 'restricted' one; a supplier must establish exemption.
Expert Witness Institute v Customs and Excise Comrs [2001]
Specific exemptions should not be interpreted so widely as to undermine other, more restricted exemptions.
Court of Appeal judgment
A transaction concerning a transfer is 'the execution of an order for the transfer of a sum of money', requiring a change in the legal and financial situation of the parties.
Sparekassernes Datacenter (SDC) v Skatteministeriet (Case C-2/95)
For a service to be exempt, it must itself effect the transfer of funds and change the legal and financial situation; mere instruction or a causally linked effect is insufficient.
DPAS and subsequent CJEU case law
Outcomes
Target's appeal was dismissed.
Target's services, involving instructing payments via BACS and updating loan accounts, do not constitute the 'execution' of payments or transfers as required by CJEU case law. The actions are preparatory, not part of the execution itself. The Court overruled the wider interpretation in FDR.
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