VAT Tribunal Publishes its Keenly Awaited Decision in Payment Processing Charges Test Case

17 Jan 2008

The VAT Tribunal has published its decision in the case of T Mobile (UK) Ltd, an appeal against a decision of HMRC concerning the VAT liability of “payment processing” charges levied on customers who do not pay their bills by Direct Debit. T Mobile charges its ‘pay monthly’ customers £3 for each bill which they pay by a method other than Direct Debit or BACS. T Mobile argued that these charges were consideration for supplies of “payment processing services”, and that those supplies were exempt from VAT pursuant to the financial services exemption (Group 5 of Schedule 9 to the Value Added Tax Act 1994).

In recent years, many telecoms and utility companies have introduced payment processing charges in an effort to encourage their customers to pay by Direct Debit. T Mobile’s appeal has been widely seen as a test case for traders seeking to establish that these charges are VAT exempt.

The Tribunal has dismissed the appeal, ruling as follows:

(1) The £3 charge was part of the consideration for T Mobile’s standard rated telecommunications services. There was no separate supply of payment processing services. In the alternative, any supply of payment processing services was ancillary to the supply of telecommunications services and should not be treated separately for VAT purposes.
(2) Even if there had been a separate supply of payment processing services, that supply would not have qualified as an exempt financial service.

Alan Bates represented the Commissioners for HMRC

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