The relevant companies in the ING group ("IDUK") carried on a retail banking trade which comprised taking cash deposits from private individuals, who were provided with a 24-hour telephone and internet banking service. Expenses IDUK incurred in its deposit-taking activities included significant expenditure on advertising campaigns, construction of a head office and two call centres, IT systems and services and employment of staff, including recruitment costs. The taxpayer wished to recover (via deduction against the outputs of a separate investment business) a proportion of VAT expenses incurred in connection with the deposit-taking business. It contended that this did not involve any VATable supply at all.
Arden LJ stated (at paras 11 and 12):
...BLP Group … held that to take out a loan does not involve a VATable transaction by the borrower at all, even if he pays interest: he is the mere recipient of a service provided by the lender… .
By contrast, banking business is an exempt business. Article 135 PVD provides that member states must exempt … "(b) the granting and the negotiation of credit and the management of credit by the person granting it;" and "(d) transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection;…". It follows that inputs are irrecoverable.
Arden LJ further stated (at para 18):
In the FTT, Judge Mosedale made clear findings that IDUK provided banking services. She specifically held that the banking services were not peripheral to its deposit-taking business. …
She concluded (at para 61):
… I would dismiss this appeal. IDUK's deposit-taking business constituted the exempt business of banking services.