Target – UK Supreme Court finds that the VAT exemption for “transactions … concerning … payments” did not include causing funds transfers through issuing payment instructions

Target administered loans made by a provider of mortgages and loans (“Shawbrook”), including by operating individual loan accounts and instigating and processing payments due from borrowers.

Article 135(1)(d) of the Principal VAT Directive exempted “transactions, … concerning … payments, transfers, debts, … but excluding debt collection”. (The rough ETA analogue is para. (a) of the financial service definition, which exempts the “payment … or transfer of money …”.) Target in this regard relied on the fact that it procured payments from borrowers’ bank accounts to Shawbrook’s bank accounts by giving instructions for payment which were then automatically and inevitably carried out through the Bankers’ Automated Clearing System (“BACS”).

After referring to various decisions of the Court of Justice of the European Union regarding this exemption, Lord Hamblen stated:

[T]he services must in themselves have the effect of transferring funds and changing the legal and financial situation. It is not enough to give instructions to do so thereby triggering a transfer or payment.

Before dismissing Target’s appeal, he then stated:

It follows that giving instructions which automatically and inevitably resulted in payment from the borrowers’ bank accounts to Shawbrook’s bank accounts via BACS is insufficient to fall within the exemption.

Neal Armstrong. Summary of Target Group Ltd v Revenue and Customs [2023] UKSC 35 under ETA s. 123(1) – financial service – (a).