In HMRC v DPAS Limited9, the Upper Tribunal (UT) has partly allowed HMRC’s appeal against the FTTs decision that a dental plan provider supplied VAT-exempt payment services to patients. A decision on whether supplies were exempt has been reserved pending upcoming CJEU decisions.


DPAS Limited (DPAS) managed the administration, finance and insurance aspects of dental plans.

DPAS entered into contracts for the provision of its services with dentists. The dental plans were “practice branded” and offered in the name of, and under the “brand” of the dentists’ practices. The agreements to provide dental services under the plan were made between the dentists and their patients. DPAS did not have any contract with the patients.

Patients paid DPAS a fixed sum each month to cover the costs of their dental maintenance and insurance for emergency treatment. After deducting its fee and the insurance premium, DPAS paid the balance of the money it collected to the dentists. A one off £10 registration fee was also payable by each patient.

Following the CJEU decision in AXA UK plc v HMRC10, with effect from 1 January 2012, DPAS implemented changes to its existing contractual arrangements to avoid the supplies being treated as standard rated. The new arrangements provided a taxable contract with the dentist and an exempt payment handling contract with the patient. The issue in the present appeal was whether DPAS made an exempt supply of services to the patients.

The FTT concluded that the £10 registration fee was an exempt supply, being ancillary to the main exempt supply and that the arrangements were not abusive. HMRC challenged this decision on a number of grounds and appealed to the UT.

The UT’s decision

The UT partly allowed HMRC’s appeal. In reaching its conclusion it considered each of HMRC’s grounds of appeal in turn.

First, the UT examined the contractual position and economic reality of the arrangements between DPAS and the patients. With the exception of existing patients who did not sign the acceptance form, the UT found that there was a contractual agreement between DPAS and the patients under which DPAS provided services for a consideration. HMRC’s appeal on this ground was therefore dismissed.

HMRC’s second and third grounds concerned whether the services were exempt under the relevant provisions of the Principal VAT Directive. However, the UT acknowledged that since the FTT’s decision there had been two references to the CJEU in Bookit11 and NEC12 and accordingly directed that the determination of the liability of the supplies be stayed pending the CJEU judgements in those cases.

HMRC also challenged the FTT’s decision regarding the treatment of the £10 registration fee  as an ancillary part of the exempt supply. It argued that the FTT gave insufficient reasons for its conclusion and was not entitled, on the evidence before it, to come to the  conclusion it did. The UT allowed HMRC’s appeal on this ground. In light of the facts, it was of the view that the patients paid the fee to join the dental plan primarily in order to obtain dental care and not to obtain payment services from DPAS. The UT therefore concluded that the £10 registration fee was chargeable to VAT at the standard rate.

Finally, the UT considered HMRC’s argument that the transactions constituted an abusive practice, contrary to the principle identified by the CJEU in Halifax13. The relevance of this ground rested on the outcome of the CJEU judgments in Bookit and NEC. If the CJEU decisions in those cases are such that DPAS’s supplies are standard rated, then the issue of abuse will not arise. However, if the CJEU decides the services are exempt, the UT commented that this would strongly suggest that the structure of the contracts would not be abusive.


Whilst the VAT treatment of the supplies in this case is yet to be determined, taxpayers will be reassured that the UT agreed with the FTT that the arrangements were not abusive and did not contravene fiscal neutrality.

The UT’s decision is available to view here.