On 20 April 2018, the First-tier Tribunal held5 that a supply of “loan administration” services to a bank was a standard-rated supply as they amounted to “debt collection”.
Although the UK VAT legislation provides that the issue, transfer or receipt of, or any dealing with, money, any security for money or any note or order for the payment of money and the operation of any current, deposit, or savings account are each exempt supplies for VAT purposes, the EU VAT Directive makes it clear that “debt collection” is not part of this exemption.
The services in question, which ran for the lifetime of the loans, perhaps crucially did not cover the making of the initial advance. The services included setting up customers’ direct debits, allocating payments to different customers’ loan accounts, issuing statements to the lender, and seeking to recover outstanding amounts.
The Tribunal held on the facts that, applying the VAT exemption narrowly (as required), the dominant supply made by the taxpayer in this case was the supply of debt collection services to the bank.
The decision will be of interest to taxpayers who outsource services that include debt collection.
The case can be viewed here.