In DPAS Limited v HMRC [2013] UKFTT 676, the First-tier Tribunal (Tax) has ruled that the restructuring of contracts to avoid VAT was not abusive.
DPAS provides dental treatment plans which enable patients to spread the cost of their dental care across the year. These dental plans are provided in the name of, and under the brand of, specific dental practices.
The agreements to obtain dental services under the dental plans were entered into between the dentists and patients. DPAS and the dentists had a separate contract under which DPAS provided various services, including management, administration, finance, insurance and marketing. Patients paid a monthly fee to DPAS. After deducting its own fee and the amount due to the insurer, DPAS would then pay the dentists the money due to them.
DPAS charged VAT on its fees. However, following a decision by the European Court of Justice in Sparekassernes Datacenter (Case C-2/95), DPAS ceased charging VAT as it was making VAT-exempt supplies and, therefore, deregistered for VAT.
Following a further European decision in Axa UK (Taxation), in which the Court of Justice of the European Union held that a company’s service of collecting payments from patients and passing them to dentists constituted non-exempt debt collection, DPAS sought to avoid charging VAT on its services and, thus, created two contracts: one between DPAS and the dentist for the delivery of taxable dental payment plan services, and another one between DPAS and the dental patient for the provision of exempt dental payment plan facilities. The fee payable by the patients remained the same but was apportioned between the two contracts.
HMRC argued that the restructured contracts were an abusive practice.
The Tribunal found that DPAS’s supply of payment services to the dental patients are VAT-exempt services and the contractual arrangements put in place to achieve this were not abusive. The Tribunal held that there is no requirement for a dental treatment plan provider to only supply services to dentists; the use of different contractual arrangements was legitimate.
