The issue was whether the service supplied by the appellant was exempt from VAT as a financial service. The appellant was the representative member of a VAT group which included Denplan Ltd, a company set up to enable subscribers to pay a fixed monthly fee to cover private dental treatment. Dentists who wished to participate in one of the appellant's plans were required to pay a one-off membership fee to register with the appellant and a further fee to set up a registration facility. They would then enter into contracts with patients wishing to use the facility and enroll them in the most appropriate treatment plan. There was no contract between the appellant and the patient. The monthly fee and insurance premium were retained by the appellant from moneys collected by direct debit from patients and the balance was passed to the dentist.

The commissioners contended that the membership fee, the registration fee and the monthly ‘payment handling’ fee constituted consideration for a single supply of standard-rated administration services. Alternatively, they contended that the latter two did so. In their view, the sums retained as a payment handling charge were consideration for the appellant's administration service. The commissioners distinguished the circumstances of this case from those in Sparekassernes Datacenter (SDC) v Skatteministeriet (Case C-2/95) [1997] BVC 509, C & E Commrs v FDR Ltd [2000] BVC 311 and Bookit Ltdv R & C Commrs [2006] BVC 605, all of which were performing tasks which constituted a specific essential function forming part of a broader financial service being provided by banks which would otherwise have been performed by the banks themselves. In the opinion of the commissioners, the appellant's services did not fall within the exemption in VATA 1994, Sch. 9, Grp. 5. Once the money was collected by the appellant, the transfer was complete, since it held the funds as agent for the dentist and the legal and financial relationship between the patient and the dentist was changed. The subsequent movement of moneys to the dentists was merely the result of giving an instruction to the bank to pay money to someone else in the same way as any individual could do. This was not an exempt supply. Even if the supply were characterised as one of receiving payments on the dentist's behalf, that would not be exempt, because the appellant would be doing no more than persons appointed by the likes of utility companies and members clubs and other traders, namely sending signed direct debit mandates to banks, receiving payments, allocating the payments and sending reminders to non-payers. The appellant was not carrying out negotiation concerning payments, it was performing administrative functions on behalf of dentists and these were standard-rated for VAT purposes.

The appellant submitted that the principles established in Sparekassernes Datacenter and other cases led to two questions in determining whether exemption applied to the services provided: (1) does the supply result in a transfer of funds and (2) does it lead inexorably to a change in the legal and financial situation? In the appellant's view, the dentist needed and received a financial service. The service it provided was a transaction concerning the transfer of payments, the effect of which was to secure payment for the dentist and which entailed a change in the legal and financial position of the dentist and patient. The appellant acted as an intermediary between the banks and the dentists and patients to ensure, on behalf of the dentists that due payment was received. This was a separate and distinct supply of payment handling services and, in the opinion of the appellant, was exempt from VAT.

The tribunal allowed the company's appeal in part.

1. Viewed realistically, it was not the case that the monthly fee was solely the consideration for the money transfers; it was consideration for all the services provided to members with a registration facility and registered plan patients.
2. The money transfer services were within the principles of SDC and entailed a change in the legal and financial situation. If the payment handling service stood on its own it would be exempt from VAT.
3. Because the appellant took part in the transfer of money it did not intermediate between the bank and the dentist and patient to ensure that payment was made.
4. The service supplied by the appellant for the three fees comprised a number of elements and was not limited to payment handling. Elements of the service indirectly connected with, and ancillary to, payment handling were: reporting on payments and non payments; chasing up non-payments; and goodwill transfers.
5. Services with no connection to the payment handling, and not ancillary thereto, included: recording of changes in patient's details; providing support in setting fees; Denplan product training; advertising the dentist's practice on the appellant's website; quality auditing; complaint handling; and arbitrating.
6. The monthly fee should be apportioned accordingly between services that were payment handling or ancillary services, which were exempt from VAT, and other services.

No. 20,342