The victory means that IVA providers will now have the chance to make a claim for a refund from HMRC from previous IVA cases where VAT was charged. It also means that IVA providers will now have the chance to claim that IVAs made in future should be exempt from taxation.
Paymex had appealed against HMRC’s attempt to charge VAT on the services it provided on an IVA, a standard procedure when debt management firms provide an IVA.
In his ruling, tribunal judge Roger Berner agreed that the supply of services including negotiation with creditors, handling payments and supervision of the IVA’s performance was exempt from VAT under European legislation.
Judge Berner said: “It is clear to us that all these aspects of the service are ancillary to the core elements of negotiation and payment handling, and that accordingly, viewed overall, the supply (of those services) is exempt as falling within article 135 (1)(d) of the Principal VAT Directive.”
Martin Ruffles, owner of law firm Ruffle and Co who represented Paymex, said: “Although this case is specific to Paymex, I don’t see how HMRC could be able to refuse exemption in IVA cases in future that match the criteria in this Paymex case.”
He added that IVA providers could now apply to HMRC for refunds from previous cases in two stages.
“Firstly, the IVA provider needs agreement with customs that it is exempt from VAT. Then, an application for the refund must be made, which can be made by a lawyer on behalf of the IVA provider.”
When that claim is sent to customs, he added, the Crown will refuse to pay it but lawyers will now have sufficient cases to call on to argue successfully that previous IVA cases should have been exempt from VAT.
The Paymex case centred on the legal definitions of the supply of services around an IVA. HMRC had tried to argue that the services provided by Blair Endersby, a subsidiary of Paymex, were taxable because they were classed as “standard-rated supplies.”
HMRC claimed that the supplies made by Blair Endersby were supplies of professional service, akin to supplies of legal or accountancy services and that this is a “a single supply.” The claim that it was classed as a single supply made it taxable, the tax authority claimed.
But while the judge agreed that the supply of services constituted a “single supply”, the overall nature of the services such as mediation, payment handling (not debt collection) and supervision, made them exempt from VAT.
Judge Berner also said: “We do not consider that it is necessary for us to decide as between negotiation and payment handling which is the dominant element of the supply. Both are exempt.”
HMRC was directed to pay Paymex’s legal costs.