HMRC has set out details of their position following the decision of the European Court of Justice in the recent case of AXA UK plc. This decision examined the extent to which debt collection activities fall within the VAT exemption in Article 135(1)(d) of the EU VAT Directive.

Following the ECJ judgment in AXA UK Plc (case ref C-175/09), ‘debt collection’ cannot be seen as applying solely to the service of chasing and recovering overdue payments on behalf of the creditor. All services principally concerned with collecting payments from the person owing them for the benefit of the entity to which those payments are owed fall within the exclusion to the exemption and are consequently liable to VAT at the standard rate.

This means that all payment related services falling within the definition of ‘debt collection’ as outlined by the ECJ in the AXA judgment are now liable to VAT at the standard rate.

If a business had previously received a ruling from HMRC that those services fall within the VAT exemption (or it has previously been treating its services as exempt in line with HMRC's published policy in this area) VAT must now be applied to those services from the date of Brief 54/10.

Further details on the background to this case, the ECJ's judgment and HMRC's position are set out in HMRC's Brief 54/10 which is reproduced on here.