The Supreme Court (SC) has upheld a judgement of the Court of Appeal (CoA) regarding the VAT treatment of loan servicing services provided by Target Group Limited (Target).  We have previously reported on the case when is was decided by the CoA, see here.

The SC has approved the ruling of the CoA holding that the services provided were not eligible for exempt of VAT treatment, meaning Target’s services will be more expensive to its prospective and current clients as many clients will not be able to reclaim the VAT in whole.

A a prior decision on another case at the CoA was relied upon by the taxpayer.  Both the Upper Tribunal and the CoA in the instant case held that this decision was based on an incorrect interpretation of European law.  The CoA had thoroughly reviewed the underlying European cases and decided that European law had moved on from the prior case decided at the CoA.  In the instant case, the CoA didn’t have the power to overrule a prior case at the same judicial level.  The SC, however, does and has now overruled this prior case holding that to properly interpret European law, a narrow construction of the legislation is necessary as the financial services exemption is an exemption from the general rule to tax all services and goods.

The decision can be found at: Target Group Ltd (Appellant) v Commissioners for His Majesty’s Revenue and Customs (Respondent) – The Supreme Court

Please contact us if you have any questions around VAT.  The above case highlights that cut-off points between standard rated and exempt are finely balanced.  The taxpayer in this case has at least charged VAT on its services since before the very long litigation process as it applied for non-statutory clearance to check that the services should be exempt.  Please let us know if you’re not sure how to classify any supplies you make or need assistance with non-statutory clearance.