Target Group Ltd v Revenue and Customs

Factual and Procedural Background

The Appellant administers loans originated by a specialist mortgage lender. Its duties include maintaining ledgers for each borrower, calculating interest, instigating direct-debit collections, reconciling payments, and handling early redemptions. The Respondent assessed these services to standard-rated Value Added Tax (“VAT”).

The First-tier Tribunal found that the Appellant’s work included “transactions concerning payments or transfers” but concluded that the single composite supply was predominately debt collection and therefore taxable. The Upper Tribunal—after the Court of Justice of the European Union (“CJEU”) delivered HMRC v DPAS Ltd—allowed the Respondent’s appeal, holding that the services were not themselves transactions concerning payments or transfers. The Court of Appeal dismissed a further appeal. The present judgment, delivered by Judge Hamblen for the Supreme Court, addresses the Appellant’s final appeal.

Legal Issues Presented

1. Whether the Appellant’s loan-administration services constitute “transactions … concerning payments, transfers or debts” within article 135(1)(d) of Council Directive 2006/112/EC so as to be exempt from VAT.
2. If so, whether the exemption is nevertheless disapplied because the services amount to (a) “debt collection” or (b) “management of credit” by a person other than the grantor, both of which are excluded from exemption.

Arguments of the Parties

Appellant's Arguments

• Giving BACS instructions that automatically and inevitably move funds from borrowers’ accounts to the lender’s account fulfils the functional test for a “transaction concerning payments/transfers.”
• Entries made to borrowers’ loan ledgers alter legal and financial relations and therefore constitute “transactions concerning debts.”
• The CJEU’s decision in Sparekassernes Datacenter (SDC), as interpreted domestically in FDR, remains good law; subsequent cases did not overturn the wider causation-based approach.
• A strict reading that confines the exemption only to the final execution of a transfer undermines settled commercial practice and treats outsourced functions differently from identical in-house banking functions.

Respondent's Arguments

• CJEU authority—especially DPAS, Bookit II and NEC—confines the exemption to services that execute the movement of funds; merely instructing or preparing for that movement is insufficient.
• The Appellant’s work is administrative and precedes the actual debit/credit operations carried out by banks; it does not itself bring about the legal and financial changes characteristic of a transfer.
• The loan-ledger entries simply record anticipated payments and are reversible; they do not alter ownership of funds and therefore fall outside article 135(1)(d).
• Even if the services were within article 135(1)(d), they would constitute debt collection or non-grantor credit management and therefore be excluded from exemption.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court undertook a detailed survey of CJEU jurisprudence and concluded that subsequent authorities (DPAS, Bookit II, NEC) definitively adopted a narrow reading of article 135(1)(d). Under that reading, a service is exempt only if, viewed as a distinct whole, it itself executes the transfer and thereby changes the legal and financial position of the payer, payee, and their banks.

The Appellant merely compiled and transmitted BACS files; responsibility for debiting and crediting accounts rested with the banks and BACS system. Therefore, the Appellant’s involvement was “a prior, administrative step” rather than execution. Causation, even when automatic and inevitable, is insufficient.

Ledger entries could not qualify as “transactions concerning debts” because they recorded expected payments and were reversible; they created no change in legal ownership of funds. The illustrative CJEU decision in ATP involved accounting entries that did change parties’ rights, a factual distinction absent here.

Because the principal argument failed, the Court found it unnecessary to address whether any residual exempt element would be removed by the “debt collection” or “credit-management-by-non-grantor” exclusions.

Holding and Implications

APPEAL DISMISSED.

The Supreme Court affirms the Court of Appeal: the Appellant’s loan-administration services are standard-rated for VAT. The ruling restores doctrinal clarity by overruling domestic authority that had treated automatic causal steps as exempt. Outsourced processors that merely initiate or record payments, without executing the actual transfer of funds, cannot rely on article 135(1)(d). No new precedent is created; rather, the judgment aligns United Kingdom law with settled CJEU authority.