The issue was whether certain services supplied to the appellant by a South African company (D) were a single supply of debt collection services so that the appellant was liable to a reverse charge under VATA 1994, s. 8.

The appellant was the representative member of a VAT group. Under a Services Agreement, D supplied services to Barclays’ Credit Card division, known as Barclaycard. The agreement provided for D's operatives to pursue outstanding payments on the Barclaycard accounts by telephone. The operatives were also enabled to request letters to be sent by Barclaycard and were required to handle customer complaints. The appellant wrote to the commissioners setting out its view that the services supplied by D were exempt from VAT under the terms of the sixth directive on the basis that they were: the negotiation of credit falling to be exempt under art. 13(B)(d)(1); and the negotiation of debt, which was exempt under art. 13(B)(d)(3). The commissioners responded that the supply was a single supply of debt collection services which would be standard-rated if supplied in the UK.

As the services were supplied by D in South Africa, they were liable to the reverse charge under s. 8 of the 1994 Act when received by the appellant. The appellant submitted that the services comprised the granting and negotiation of credit when a repayment plan was agreed or the debt re-aged. It did not matter that the credit was an indulgence within the context of an existing relationship. The negotiation of credit was not ancillary to, but was the essence of, the supply by D. The appellant further submitted that the reward was for successful negotiation, not for obtaining payments. Alternatively, the service involved a transaction concerning payments in that the aim of the operative was to obtain and process an immediate payment by taking debit card details and processing them. If no payment was obtained, a promise of payment was sought. In the appellant's view, all of these were exempt services and the process of debt collection did not begin until negotiations proved to be unsuccessful.

The commissioners submitted that the service was one of debt collection. The appellant was rewarded for outstanding amounts being below the target and for debt recovery, not for time taken in negotiations. The appellant worked in accordance with UK regulatory codes on debt collection because that is the service it was providing, and since debt collection was an enforcement service rather than a financial service, it was excluded from exemption.

The tribunal dismissed the bank's appeal.

1. In accordance with its objective character, the essential aim of D was the recovery and collection of debts for the appellant. It was clear that some exempt services were performed, if viewed in isolation, but whether the services fell to be exempt as financial services or taxable as debt collection depended on their essential aim viewed objectively. In the judgment of the tribunal, the essential aim was not negotiation but debt collection.
2. The services supplied by D to the appellant were excluded from the exemption in art. 13(B)(d)(1) or (3) of the sixth directive.
3. Unlike Community law, the UK legislation did not contain any exclusion from exemption for debt collection. In the tribunal's view, the narrower wording of VATA 1994, Sch. 9, Grp. 5 excluded debt collection where the transfer of money was not the end in itself but the outcome of the debt collection service.
4. The appeal was dismissed on the interpretation of both the EC directive and UK law.

No. 20,528