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	United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Axa UK Plc v Revenue & Customs [2007] UKVAT V20342 (12 September 2007) URL: http://www.bailii.org/uk/cases/UKVAT/2007/V20342.html Cite as: [2007] UKVAT V20342

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20342

EXEMPTION – service supplied to dentists of collecting annual fee by monthly instalments from patients and passing them on to the dentists – Appellant collecting and paying fees by sending a file to BACS – exempt –fee to be apportioned in respect of other taxable supplies

LONDON TRIBUNAL CENTRE

AXA UK PLC Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

Tribunal: DR JOHN F AVERY JONES CBE (Chairman)

RUTH A WATTS DAVIES MHCIMA FCIPD

Sitting in public in London on 16 and 17 August 2007

Jonathan Peacock QC, counsel, instructed by Deloitte & Touche LLP, for the Appellant

Rupert Anderson QC and Alan Bates, counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007


 


DECISION

1. Axa UK plc appeals against (1) a decision on 21 June 2006 refusing a claim for overpaid VAT in respect of periods 03/02 to 12/04 and (2) an assessment made on 27 September 2006 in respect of periods 03/05 to 03/06. Mr Jonathan Peacock QC appeared for Axa UK plc and Mr Rupert Anderson QC and Mr Alan Bates for Customs.
2. Axa UK plc is the representative member of the group including Denplan Limited (to which for convenience we shall refer hereafter as "the Appellant"). The Appellant provides a service (known as Denplan) to dentists who have become members and have entered into agreements with private patients for plans setting out the dental care to be provided for a monthly fee in the course of a year. The dentist arranges with the Appellant that the patient pays the Appellant the monthly fee by direct debit. The Appellant takes a fee out of the monthly payment, pays an insurance premium to a group company to cover emergency treatment, and accounts to the dentist for the balance. The dentist is relieved of any work in collecting fees for patients registered in the plan. The issue is whether the service supply for the monthly fee is exempt as a financial service.

Facts

3. We had four binders of documents and we heard evidence from Mr Steve Cross, Finance Director of the Appellant, and find the following facts.

(1) The background is that in the last ten years the number of dentists prepared to treat patients for the NHS scale of fees has reduced and dentists have moved to treating patients privately. The result is that the dentist sees fewer patients at a higher rate enabling him to spend longer with each patient. The Appellant was formed in 1986 and assists this change by enabling patients to pay a fixed monthly fee for their private treatment. The Appellant was taken over in 1993 by Private Patients Plan Limited and is now a subsidiary of AXA PPP Heathcare Group plc

(2) The current split of dental patients is that 61 per cent pay under the NHS system, 24 per cent pay privately per visit, 10 per cent pay under a plan covering preventative care only, and 6 per cent by a plan covering all treatment.

(3) A dentist whose patients wish to participate in one of the Appellant's plans must first register with the Appellant as a member for a one-off fee of £60 (£50 if the dentist is a member of certain bodies). The dentist must submit a self-assessment of his practice (dealing with such matters as disabled access, equipment and facilities, infection control and sterilisation procedures, patient records, management of collapse, radiography, practice management and practice administration) with the application, which must be approved by the Appellant before he can register. Having registered there is no obligation on the dentist to take any further services from the Appellant.

(4) The next step is for the dentist to set up a registration facility, for which he pays a one-off fee of £35. At this stage this merely records the dentist's details including bank details and forms the basis for registration of patients who take out plans. Again, there is no obligation on the dentist member with a registration facility to take any further services from the Appellant.

(5) Thirdly, the dentist may enter into contracts with patients and register patients on a plan (to whom we shall refer as "plan patients"). The available plans are Denplan Care (its core product), covering all treatment and including an insurance element to cover emergencies; Denplan Essentials covering only routine care and also insurance for emergencies; and Denplan Essentials for Children (enabling children to be registered separately from their parents; the other plans enable children to be included in a family plan). The patient contracts with the dentist for one of these plans for a year for a monthly charge set by the dentist. For Denplan Care there are five categories depending on the patient's dental condition each with different fees. There is no contract between the Appellant and the patient. The patient also contracts to pay the annual charge by monthly payments plus an additional month's charge for his registration with the Appellant, which includes his name, address, dental records and other details. Alternatively a patient can pay an annual amount in advance by direct debit, in which case instalments are paid monthly to the dentist and meanwhile the Appellant holds the money on the terms of an express declaration of trust in favour of the dentist.

(6) The monthly charge for the Appellant's services paid by the dentist to the Appellant varies according to the number of patients registered with plans. In 2003 this varied between 21p (2,000 or more patients in plans per dentist) to £1.63 (up to 25 patients) with an overall average per patient of 71p. The insurance cost is a fixed £1.26. The fee and insurance premium is taken by the Appellant out of money collected from patients before accounting to the dentist. Accordingly, if no payment is made by the patient, for example because there was no money in his bank account out of which to take the direct debit, no fee would be paid by the dentist to the Appellant.

(7) By way of example the income of the Appellant from its management accounts for 2003 included: membership fees £15,997; registration fees £1,499,274 (this includes fees paid by the patients); monthly fees and insurance £23,379,872 (which based on the figures in the previous paragraph would break down into insurance £14,953,623 and fees £8,426,248); and insurance commission £11,362.908.

(8) The mechanism of payment is that the patient completes a direct debit mandate at the same time as joining a plan, which the Appellant enters on its computer and lodges the bank account details with the patients' banks. The Appellant creates a BACS file (day 1) and sends it to BACS to instruct it to collect fees from patients. If payment is not received it receives a report of unpaid amounts (day 5) and writes to patients requesting payment. On receipt of the direct debit payments (day 3) it reconciles the payments received with payments to be made to dentists (day 10). It creates a BACS file for the payments to dentists and sends this to BACS (day 14). It sends out a report of payments and unpaid amounts to the dentists (day 15) and the dentist receives payment (day 16). The monthly report of payments and non-payments also analyses total patient registrations, a breakdown of Denplan Care patients into each of the five categories and the fees, percentage and number of patients in each, a list of new registrations, a list of implants rebate payments, change of address, and a full patient list showing for each patient the fees collected that month, the Appellant's fees and the net amount due to the dentist.

(9) The Appellant provides other services to dentists who are members, including Denplan Excel Quality for which the dentist pays a separate joining fee and monthly fee. The dentist is required to comply with items not included in the quality assurance programme. Patients are given a score out of 100 for their oral health. This enables better communication between the dentist and the patient through a patient questionnaire mailed to the patients every 24 months. The Appellant also provides courses on practice care for member dentists which fees are charged, and bespoke courses are also arranged.

(10) Denplan Enhance is a plan available to non-members under which the dentist can offer a payment plan for expensive treatment by a third-party finance house offering an interest-fee loan for periods up to 36 months for which the Appellant receives a commission for acting as an intermediary. The patient pays off the loan by monthly instalments. The dentist receives a discounted figure for his full fee depending on the period of the loan, varying from a discount of 6 per cent for a 6 months' loan to 15 per cent for a 36 months' loan with an additional 0.5 per cent discount if the patient is a non-Denplan patient.

(11) Not all dentists solely becoming members or becoming members plus setting up a registration facility have plan patients. Currently 15 per cent (1,019 dentists comprising 798 ordinary members, 91 Excel members, and 130 Enhance members) are members with no registration; and 2 per cent (214 dentists, comprising 192 members, 2 Excel members and 20 Enhance members) have membership and a registration facility but no plan patients. The remaining 83 per cent (5,584 dentists, comprising 4,615 ordinary members, 414 Excel members, and 555 Enhance members) are members with registration and have plan patients. About 50 dentists who have registered or set up a registrations facility but without any plan patients will be in process of setting up patients' plans. No analysis of the rest has been made but some will be still practising and presumably expecting to sign patients with plans, and some will be retired since membership is for a one-off payment and continues when the dentist retires.

(12) The relationship between the dentist and the Appellant is governed by the Rules of Denplan of which there are 2003 and 2006 versions. The Denplan Rules provide:

(a) Membership requires the completion of an application form and a Self-Administered Practice Assessment and payment of the membership fee.

(b) A registration facility is a facility for registering contracts with the dentist's patients for which a registration charge is made. A dentist may have separate registrations for different locations or for different assistants.

(c) Rule 6.1 of the 2003 Rules provides:

"Subject to payment of Denplan's charges, in respect of contracts registered under a registration facility allocated to him or her, a member is entitled to the following services from Denplan: (i) maintenance of a database containing details of the member's registered patients; (ii) collection from registered patients on the member's behalf of initial registration charges and capitation fees [this is the additional monthly fee paid by the patient for registration of the patient]; (iii) provision of regular monthly reports detailing registrations and capitation transactions carried out on the member's behalf; (iv) remittance of money held by Denplan due to the member; (v) giving of notices on the member's behalf to registered patients concerning changes in capitation fees and other administrative matters arising; and (vi) maintenance of insurance (on such terms as Denplan considers appropriate) for the benefit of his or her registered patients against the cost of emergency care and treatment for dental injury."

[These are lettered (a) to (f) in the Rules and are re-numbered above to avoid confusion with paragraph numbers in this decision.]

(d) The 2006 rules are in more modern language but are essentially the same except that for financial services reasons insurance is now dealt with under a separate heading, items (i) to (v) are described as payment handling services and there is no reference to these being supplied subject to paying the monthly charges.

(e) When the Appellant collects charges and fees and gives notices of changes in fees and other administrative matters it acts as the member's agent and is deemed to have all necessary authority for that purpose.

(f) Members may change their fee rates for plan patients on 1 January only.

(g) The Appellant provides complaint handling and arbitration services for the resolution of disputes arising from care and treatment provided to registered patients.

(h) Fees collected by the Appellant from patients are held on behalf of members but they are permitted to deduct any amounts due to the Appellant.

(i) A member relinquishing or acquiring goodwill of patients for whom contracts are registered can apply for Denplan's Block Re-registration service enabling continuity of plans with the new member.

(j) A Quality Programme with the objective of the provision of treatment of the highest standard requires members to co-operate with the Appellant in connection with any assessment of their practice.

(k) The member is entitled to use the Appellant's trademarks including the apple symbol in accordance with the terms of use.

(13) Although not included in the Rules, the Appellant provides a survey to assist members in setting fees by collecting information from members and providing averages broken down by post codes. The guide to setting your fees in 2007 sets out other services provided by the Appellant: provision of a dedicated practice support team; access to regional and key client consultants; access to the Denplan patient team; contribution to the Denplan quality programme; receipt of the Update magazines; access to the Denplan's risk management service; marketing support; and invitations to Denplan events (clinical, hospitality or networking) for some of which separate charges are made.

(14) Also not mentioned in the Rules is a buying club available to members in which suppliers offer discounts on mainly, though not exclusively, dental products. The member's details are also advertised on the Appellant's website, and the member has access to the members-only part of the website, which includes a forum.

(15) Associated with the goodwill transfer service is the provision by the Appellant of guidance to buying and selling goodwill.

(16) The relationship between the dentist and the patient in a plan is governed by the Denplan Contract and the Care Agreement. There are different contracts for Denplan Care and Denplan Essentials. The Appellant describes its role as being "to provide administrative services to support the contract between you and your dentist. This includes passing your payments onto your dentist on a regular basis." The contract provides for the treatment included in the plan, what is covered by the insurance policy, the initial registration charge and the monthly payment, which is reviewable on 1 January in every year. Included with the registration form is a direct debit instruction to the patient's bank.

4. The parties are not agreed about the relationship between the services provided by the Appellant and the three types of fee (one-off membership fee, one-off registration facility fee, and the monthly fee). Mr Jonathan Peacock QC, for the Appellant, contends on the facts that the monthly fee is solely consideration for the monthly money transfers as is demonstrated by the fact that if there is no money transfer, for example because there was no money in the patient's bank account, there is no fee. An effect of the Appellant's contention is that the following services other than money transfers must be supplied in consideration of the one-off membership fee: goodwill transfers; support in setting fees; Denplan product training; use of Denplan brand name and logos; advertising the member's practice on the Appellant's website; the magazine Update, access to the members-only section of the website which includes a forum; quality audits; complaints handling, and arbitration. Of these, all except the magazine, the website and use of the trademarks are restricted to patients registered with plans. For example, goodwill transfers relate only to transfers of plan patients; setting fees is relevant only to plan patients; complaints handling and arbitration relate only to plan patients; and quality audits would be undertaken only if there are plan patients. The Appellant points out that 15 per cent of members are dentists without a registration facility; and a further 2 per cent have a registration facility without any patients being registered.
5. Mr Rupert Anderson QC, for Customs, contends on the facts:

(1) The membership fee and registration fee and the monthly "payment handling fee" consititute consideration for a single supply of administration services; alternatively the second and third of them do so. The total package of administration services comprises marketing materials regarding payment plans, standard forms for setting up payment plans, maintenance of a database of patients, sending notifications to patients of fee changes, receiving payments, cross-referencing payments to patients' records etc, which a dentist would have to do himself in order to receive payments under a monthly plan operated by the dentist. Payment handling is part of the administration service, and is not an end in itself or the predominant part of the total supply. Alternatively, that element is ancillary to the principal service of administering the monthly payments scheme.

(2) The administration service allows dentists to alter the way in which they charge their patients; instead of pay as you go, patients are charged under an established monthly Denplan payment plan in which the Appellant does more than receiving payment by direct debit and passing them on to the dentists and greatly reduces the administrative burden on the dentist.

(3) The essential purpose of the registration facility is to put monthly plans in place, and that facility cannot be divorced from the collection of payments which that facility makes possible.

6. Our finding of facts is that, even though the 2003 Rules tie the monthly fee to the money transfers, one must consider this in the context that patients cannot be registered unless the dentist is a member and has a registration facility. Where all three exist there is no reason to attribute to the membership fee facilities that are available only where there are plan patients. It is more realistic to attribute to the membership fee only those facilities that relate to members without plan patients, such as the use of the member-only section of the website and use of the trademark. We are unable to understand why a member should have a registration facility but no plan patients registered, particularly as the number in this category (214) exceeds the 50 who are likely to be in course of setting up patient plans. We suspect that they are likely to include some members who hoped to, but have failed to, persuade any patients to join a plan, and some retired dentists since the registration facility is for a one-off fee and would not terminate on retirement. Accordingly our finding of fact is that viewed realistically it is not the case that the monthly fee is solely the consideration for the money transfers. The monthly fee is consideration for all services provided to members with a registration facility and registered plan patients.

The law

7. Article 13B(d) of the Sixth Directive exempts:

3     transaction, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection and factoring;

The relevant part is "transaction, including negotiation, concerning… payments, transfers."

8. By Group 5 of Schedule 9 to the VAT Act 1994 exempts:

The issue, transfer or receipt of, or any dealing with, money, any security for money or any note or order for the payment of money.

…

The provision of intermediary services in relation to any transaction comprised in item 1, 2, 3, 4 or 6 (whether or not any such transaction is finally concluded) by a person acting in an intermediary capacity.

Notes

(5) For the purposes of item 5 "intermediary services" consist of bringing together, with a view to the provision of financial services?

(a)  persons who are or may be seeking to receive financial services, and

(b)  persons who provide financial services,

together with (in the case of financial services falling within item 1, 2, 3 or 4) the performance of work preparatory to the conclusion of contracts for the provision of those financial services, but do not include the supply of any market research, product design, advertising, promotional or similar services or the collection, collation and provision of information in connection with such activities.

(5A) For the purposes of item 5 a person is "acting in an intermediary capacity" wherever he is acting as an intermediary, or one of the intermediaries, between?

(a)  a person who provides financial services, and

(b)  a person who is or may be seeking to receive financial services ...

(5B) For the purposes of notes 5 and 5A "financial services" means the carrying out of any transaction falling within item 1, 2, 3, 4 or 6.]

Contentions of the parties

9. Mr Jonathan Peacock, for the Appellant contends on the law, in outline:

(1) Services in transmitting money from one person's account to another has for a long time been accepted as exempt: British Hardware Federation v Customs and Excise Commissioners (1976) VAT Decision 216.

(2) Negotiation services "concerning…payments, transfers" or in domestic law intermediary services are exempt: Debt Management Associates v Customs and Excise Commissioners (2002) VAT Decision 17889. If B handles payments by direct debit from A to C in return for a fee by securing for C the direct debit, this is within the concept of negotiation.

(3) A person who effects transfers of money in discharge of chains of contractual rights and obligations created by a direct debit transaction provides exempt services: Sparekassernes Datacenter v Skatteministeriet, ("SDC") Case C-2/95, [1997] STC 932 at [53], [66] (see paragraphs 13 and 14 below); Customs and Excise Commissioners v FDR [2000] STC 672 at [38]. In particular in SDC at [54] to [56] the Court contemplates three situations in which the exemption would apply: (1) a customer can effect a payment himself or cause it to be made; (2) the transfer can be carried out by a data-handling centre and a customer; and (3) the transfer can be carried out by a data-handling centre and a third party acting at the customer's request. It is not enough that the element is essential for completing an exempt transaction; the service must have the effect of transferring funds and entail changes in the legal and financial situation: SDC at [66]. Accordingly the questions are: does the supply result in a transfer of funds, and does it lead inexorably to a change in the legal and financial situation?

(4) Here the dentist needs and gets a financial service. The Appellant's service is a transaction concerning payments, transfers (in domestic law a dealing with money) since the effect is to secure payment to the dentist, which entails a change in the legal and financial position of the dentist and patient. In Bookit v HMRC [2006] STC 1367 at [36] to [45] (part reproduced at paragraphs 17 and 18 below) obtaining the authorisation codes from issuing banks and transmitting the codes to Girobank for processing effected payment; here the Appellant's obtaining authorisation from the patient to make direct debit payments, and calling for payment by BACS, and transmitting payment to the dentist effects payment to the dentist.

(5) Negotiation refers to the activity of an intermediary who is not a party to the contract by which the financial service is delivered and who plays a role different to the provider and recipient of the financial service: CSC Financial Services Ltd v Customs and Excise Commissioners ("CSC"), Case C-235/00, [2002] STC 57. It is not necessary that there should be a contractual relationship between the negotiator and the ultimate provider or ultimate recipient of the financial service: Ludwig, Case C-435/05 at [23] to [29], [33]. It does not extend to appointing a sub-contractor to provide clerical services. Here the Appellant intermediates between the banks and the dentist and patient to ensure, on behalf of the dentist, that a payment is made by the patient to the dentist.

(6) On whether there is a separate service or a composite taxable supply the principles are set out in Card Protection Plan Ltd v Customs and Excise Commissioners ("CPP"), Case C-349/96 [1999] STC 270, Levob, Case C-41/04 [2006] STC 766, and Aktiebolaget NN, Case C-111/05, and as considered by the House of Lords in Dr Benyon and Partners v Customs and Excise Commissioners [2005] STC 55 and College of Estate Management v Customs and Excise Commissioners [2005] STC 1597. Here there is a separate supply of payment handling services.

10. Mr Rupert Anderson QC and Mr Alan Bates contend on the law, in outline:

(1) The Appellant does nothing in the nature of out-sourcing of a supply by a bank. The Appellant does not make transfers that entail changes in the legal and financial situation; it calls for funds via BACS, which if the patient's direct debit has not been cancelled, and if there are funds in the bank, the patient's bank will allow a debit on the patient's account and a corresponding credit to the Appellant's account. The transfers are made by the patient's bank, BACS and the Appellant's bank. The Appellant's role is not comparable to that of SDC, FDR or Bookit, all of whom were performing tasks which constituted a specific essential function which formed part of a broader financial service being provided by banks, which would otherwise have been performed by the banks themselves. The supply by the Appellant does not form within the exemption in Group 5 of Schedule 9 to the VAT Act 1994.

(2) Once the money has been received in the Appellant's account the transfer is complete since the Appellant holds the funds as agent for the dentists and so the legal and financial position between the patient and the dentist has been changed. Transferring the funds to the dentists cannot, so far as the Appellant is concerned, be an exempt transaction. It is simply giving an instruction to its bank (just as any individual could do) to pay money to someone else via BACS.

(3) Even if the supply were characterised as one of receiving payments on the dentist's behalf, that supply does not fall within the exemption. The Appellant is doing what other traders, such as utility companies, gyms, account-providing taxi companies, clubs and societies, do not do for themselves, ie sending signed direct debit mandates to banks, receiving payments in its account, cross-referencing those payments with customers on its database, and sending reminders to customers from whom payment has not been received.

(4) SDC shows that the intention is to restrict the exemption to services of the nature of those supplied to banks. SDC was an association of banks that provided a component part of the exempt financial service that banks were supplying to their customers, and would have to do themselves if SDC were not there. Similarly in FDR, the service was a component part of the overall financial service which banks were providing to their customers; the company was effectively part of the banking system and was supplying its services to the banks. The same was true in British Hardware Federation which was operating its own banking system; the Tribunal noted that it worked "on similar lines to the Bank Traders Credit or Giro system." As the ECJ said in Velvet & Steel, Case C-455/05 at [22]: "Although those transactions [transactions within art 13B(d)], defined according to the nature of the services provided, do not necessarily have to be carried out by banks or other financial institutions…, they relate, nevertheless, as a whole, to the sphere of financial transactions." Similarly, in Bookit the company succeeded because it carried out a function that would normally be carried out by a bank as a component of the banking system, namely having obtained card authorisation codes from card issuers, transmitting the card information with the necessary security information and the card issuer's authorisation codes to Girobank. It was important that Bookit's services were not performed as agent or subcontractor of the customer, Odeon or Girobank (see the passage from the Vice-Chancellor's judgment quoted by the Court of Appeal at [31]); here the Appelalnt receives the money as agent for the dentist. Here the Appellant is providing administrative services to dentists who provide dental care to their patients.

(5) The Appellant is not carrying out any negotiation concerning payments, such as did Debt Management Associates; it was performing administrative functions on behalf of dentists in connection with the receipt of payments which are due to them from their patients. As the ECJ said in CSC the supply of clerical services is not a supply of exempt negotiation services simply because those services may lead to a financial transaction being carried out by another person. Further, the dentists on whose behalf the Appellant receives payments are not themselves providing a financial service.

Does the exemption apply?

11. We turn to consider whether the Appellant's payment handling services are exempt. In spite of our findings of fact we shall at this stage consider this question on the basis that the supply is a separate one solely of payment handling services.
12. It is common ground that exemptions must be construed strictly, and are concepts of Community law which must be placed in the general context of the common system of VAT: SDC at [20] and [21].
13. The European Court of Justice gave the following guidance on the meaning of "transfer" in SDC, which was an association of banks providing services to the member banks including the execution of transfers:

"53. On this point, it must be noted first of all that a transfer is a transaction consisting of the execution of an order for the transfer of a sum of money from one bank account to another. It is characterised in particular by the fact that it involves a change in the legal and financial situation existing between the person giving the order and the recipient and between those parties and their respective banks and, in some cases, between the banks. Moreover, the transaction which produces this change is solely the transfer of funds between accounts, irrespective of its cause. Thus, a transfer being only a means of transmitting funds, the functional aspects are decisive for the purpose of determining whether a transaction constitutes a transfer for the purposes of the Sixth Directive.

…

The contractual links between the bank and its customer do not diminish the role of the data-handling centre. It is from those links that the customer derives the right to have transactions effected, even if they are invoiced as services provided to the bank and also alter the bank's financial situation.

Moreover, if point (3) of art 13B(d) of the Sixth Directive covered only the service which a financial institution provides to the end customer, only certain acts concerning transfer transactions could be exempt. Such an interpretation would restrict the exemption in a way which is not supported by the wording of the provision in question. That wording does not restrict the exemption to that relation and it is sufficiently broad to include services provided by operators other than banks to persons other than their end customers.

It follows from the foregoing that an interpretation restricting application of the exemption provided for by point (3) of art 13B(d) to services provided directly to an end customer is unfounded."

This case establishes the following propositions: (1) a transfer is the execution of an order for the transfer of a sum of money from one bank account to another, (2) it involves a change in the legal and financial situation existing between the person giving the order and the recipient and between those parties and their respective banks, (3) there is no requirement for the supplier to be a bank, and (4) there is no requirement for a direct contractual link between the person executing the transfer and the ultimate customer of the bank. Whether or not SDC's services qualified for exemption was a decision for the national court, and it is recorded in FDR at [31]: "We were told that the case was then settled between SDC and the Danish tax authorities, on terms which were at least relatively favourable to SDC; though I agree with Mr Paines [for Customs] that that circumstance is of no relevance to anything we have to decide."

14. The exemption for transactions concerning payments and transfers is limited to the service having the effect of transferring funds and changing the legal and financial situation, and not something else, however essential:

Given this difference of view, it must be noted first of all that the wording of point (3) of art 13B(d) of the Sixth Directive does not in principle preclude a transfer from being broken down into separate services which then constitute 'transactions concerning transfers' within the meaning of that provision and which are invoiced by specifying the elements of those services. The invoicing is irrelevant for the application of the exemption in question, provided that the actions necessary for effecting the exempt transaction can be identified in relation to the other services.

However, since point (3) of art 13B(d) of the Sixth Directive must be interpreted strictly, the mere fact that a constituent element is essential for completing an exempt transaction does not warrant the conclusion that the service which that element represents is exempt. The interpretation put forward by SDC cannot therefore be accepted.

In order to be characterised as exempt transactions for the purposes of points (3) and (5) of art 13B, the services provided by a data-handling centre must, viewed broadly, form a distinct whole, fulfilling in effect the specific, essential functions of a service described in those two points. For 'a transaction concerning transfers', the services provided must therefore have the effect of transferring funds and entail changes in the legal and financial situation. A service exempt under the directive must be distinguished from a mere physical or technical supply, such as making a data-handling system available to a bank. In this regard, the national court must examine in particular the extent of the data-handling centre's responsibility vis-à-vis the banks, in particular the question whether its responsibility is restricted to technical aspects or whether it extends to the specific, essential aspects of the transactions.

One must therefore identify services that "form a distinct whole, fulfilling in effect the specific, essential functions of a service described" in the exempting provision for transfers which "must therefore have the effect of transferring funds and entail changes in the legal and financial situation." As Laws LJ said in Customs and Excise Commissioners v FDR Limited [2000] STC 672 at [37]: "a transfer of money means no more nor less than the entry of a credit in the payee's account and the entry of a corresponding debit in the payor's account."

15. FDR is particularly relevant as it involves the application of the law as laid down in SDC to the UK system of a company instructing BACS to make transfers following debit and credit card transactions. In very broad outline when a customer pays a shop ("merchant") with a credit card, in an electronic transaction in which the card is swiped through a machine (the case deals with manual transactions but we shall omit these from the summary), the merchant obtains FDR's authorisation (which obtains, or already possesses, authorisation from the bank that issued the card ("issuer") (if above a floor limit)); the bank to which the merchant is contracted ("the acquirer") pays the merchant's account; the acquirer recovers the payment from the issuer, which in turn is paid by the customer. FDR become involved in authorising the original transaction by the merchant; instructing BACS to credit the merchant and debit the acquirer; collecting together all transactions between acquirer and issuer banks in the day and netting them off, making the balancing payment by CHAPS. FDR may also be involved in instructing BACS to make payments between cardholders and issuers at the end of the month, and also in instructing BACS to pay the commission on the card transactions from the merchant to the acquirer. The role of BACS was explained as follows:

"23. As the tribunal stated (see p 21, para 67) the BACS procedure is explained at paras 548 to 565 of the Encyclopaedia of Banking Law (Division D1). At para 548 this appears:

'BACS Ltd is an automated clearing house which provides bulk electronic clearing for credit and debit transfers such as standing orders, direct credits and direct debits. Typically, BACS deals with high volume, but low value, transfers of funds. It is commonly used for the payment of monthly salaries and the collection of regular payments, eg utility bills, insurance premiums and mortgage repayments. There are currently 15 BACS members [April 2000: all the members are banks]. Each member has direct access to the BACS system and will supply BACS with credit and debit instructions as computer data ("input data") for processing …'

The tribunal accurately summarised the account given in the Encyclopaedia of Banking Law thus (see p 21, para 67)—

'… BACS receives the input data by 9 pm on the first day of a 3 day cycle, processes it overnight by 6 am on day two by which time it despatches credit and debit instructions to each member by telecommunications link or courier. Every instruction to credit an account is accompanied by an instruction to make a corresponding debit to the account from which payment is made. Individual magnetic tapes or discs are produced for each member, the members being banks or building societies. Once inter-bank clearing is complete the members' overall balances are adjusted accordingly at the Bank of England.'

I do not understand it to be in controversy that once the input data are supplied by the appropriate means, the process thereafter is wholly automatic, and results in an actual transfer of money between accounts.

At para 68 of the decision the tribunal said (see p 21):

'FDR's tapes for a day will supply BACS with instructions to debit the account of each Acquirer and credit the accounts of its Merchant customers. BACS in effect breaks the instructions down to credit instructions for a large number of separate Merchant's accounts presumably consolidating these with instructions from other sources in respect of those accounts.'"

16. The Court of Appeal held that the instructions by FDR to BACS resulted in FDR making transfers:

I have already given an account of the BACS system (see paras 23 and 25). There are up to four (not four in every case) stages in FDR's activities where BACS may be deployed: (1) where the acquirer's head office is debited, and its high street branch credited, with a payment made out of the local branch to the merchant's bank account (see para 14 above), (2) where (the purchase of the curtain material in the shop [which was Laws LJ's example transaction] having been effected electronically) a credit entry is posted by BACS to the merchant's bank account and a corresponding debit entry posted to the acquirer's account (see para 15); (3) where the cardholder's ordinary bank account is debited with the amount which represents his payment (in full or part) of his monthly bill, and the issuer's account is credited accordingly (see para 17); and (4) where the merchant's bank account is debited, and the acquirer's credited, with an amount to represent the commission due from the former to the latter. [We have summarised paras 14 to 17 in the opening part of paragraph 15 above.]

The tribunal held, specifically in relation to (3) above (see p 46, para 186 of the decision):

'We also hold that the issue of instructions by FDR to BACS to notify direct debits to cardholder's banks in order to cover the amounts due to the card account is a transfer, whether or not there is only the one bank involved. If BACS as intermediary is making a transfer it would be illogical if the person initiating the direct debit is not. It would be theoretically possible for FDR to give an instruction for a direct debit to BACS which is not netted off by BACS in any way because there is no other transaction involving that person on that day. In such a case BACS would merely be passing on the instruction. It would be anomalous if the activity of BACS was exempt but not that of the real transferor.'

And at para 196 it stated (see p 47): 'The BACS activities in respect of Acquirers are more extensive [than] those involving Issuers but we see no difference in principle.'

On this aspect of the case, it is in my judgment of the first importance to recognise that BACS for its own part exercises no judgment or discretion whatever. Once the relevant tape is prepared (and that is admittedly done by FDR) and delivered to BACS, the process is, as I have said, automatic. Moreover the inevitable outcome is a redistribution of the rights and obligations of payor and payee—a 'change in the legal and financial situation'—the very circumstances which in my judgment constitute a transfer of funds for the purposes of art 13B(d)(3). As far as I can see that result would only not be arrived at if the BACS hardware or software were to break down, or if (assuming this were possible) FDR were to countermand its instructions during the BACS payment cycle. In those circumstances BACS is in my judgment merely the agency by which FDR effects transfers, in the four situations I have identified. Any other conclusion would be contrary to the good sense of the general law: Qui facit per alium facit per se (he who does a thing through another does it himself). And I cannot in this see the least affront to the reasoning in SDC: quite the contrary: it is a conclusion which conforms to the letter and spirit of art 13B(d) as it was explained in that case."

The reason why FDR's instruction to BACS was, in the words of the Court in SDC, "the execution of an order for the transfer of a sum of money from one bank account to another" was because BACS automatically carried out the instruction and so by giving the instruction FDR was effectively executing the order.

17. Both SDC and FDR involve players operating within the banking sphere. Bookit takes the story further by involving an external participant. Bookit is a member of the Odeon group that supplied services in connection with telephone and internet bookings ("Advanced Card Transactions") for Odeon cinema tickets, for which it charged the customer an additional 50p per ticket. It was the VAT treatment of this payment that was in dispute. Bookit's services consisted of: (1) checking with Odeon the availability of tickets for the performance requested by the customer; (2) on receipt of confirmation from Odeon, informing the customer of the cost and the additional charge for card bookings; (3) taking card details and security information from the customer; (4) transmitting that information to Girobank (which seems to carry out the role of the acquirer bank in FDR) and obtaining Girobank's authorisation for transactions in excess of a floor limit (it is also under an obligation to check card details below the floor limit); (5) confirming the purchase of tickets to Odeon; (6) confirming the booking to the customer who later collects the tickets from the cinema before the performance by putting the card into a machine that issues the ticket and card receipt; (7) during the night after the booking batching all card transactions that day per card issuer and transmitting details to each issuer; (8) the issuers provide an authorisation code for each transaction (or where it is not authorised, the reason; where this is "out of funds" Bookit may present the transaction the next day); (9) still during the same night, collating the authorised transactions and transmitting the details, including the authorisation codes, to Girobank; (10) Girobank processes the payment, credits Bookit's account with Girobank with the price of the tickets and the handling charge within one or two days, and also debits the customer, and within one banking day transfers the credit by BACS to Bookit's nominated bank account (Girobank is under no obligation to make any payments to Odeon); (10) Bookit pays Odeon the price of the ticket (but not exceeding the amount received by Girobank from the card issuer) and retains the card handling charge; (11) Bookit pays Girobank a fee of 1.165 per cent for Visa and Master Card transactions and 6 pence per Switch transaction. The issue was whether the handling fee was exempt. In the Court of Appeal Chadwick LJ, with whom Sedley and Arden LJJ concurred, said:

[35] …the Tribunal found that the supply by Bookit to the customer included the following components: (i) obtaining the card information with the necessary security information from the customer, (ii) transmitting that information to the card issuers, (iii) receiving the authorisation codes from the card issuers and (iv) transmitting the card information with the necessary security information and the card issuers' authorisation codes to Girobank. But the tribunal did not make a positive finding that the supply was limited to those components.

[36] The Vice-Chancellor pointed out that the effect of the supply by Bookit to the customer of services having the fourth of the components identified by the tribunal—the transmission of the card information, the security information and the card issuers' authorisation codes to Girobank—was that the price of the ticket and the card handling fee was transferred from the customer (in the case of a debit card transaction), or from the card issuer (in the case of a credit card transaction), to Bookit's account with Girobank. That is what cl 3.1.1 of the MSA required Girobank to do on receipt of the card transaction data.

The clause referred to was that:

Girobank shall:

1.1 credit Bookit with the amount of all Card Transactions and Advanced Card Transactions effected by Odeon and in respect of which the relevant Card Transaction Data is presented to Girobank in accordance with the terms of this Agreement by crediting a Girobank account within the United Kingdom, nominated by Bookit or such other account as may be agreed between the parties;

Accordingly, just as in FDR sending the file to BACS effected the transfer, here sending the file containing the card details and the issuers' authorisation codes to Girobank effected the transfer because Girobank was required to act on the information by crediting Bookit's account.

18. On whether that supply qualified for the exemption the Court said:

[45] It was because the fourth component of the service supplied by Bookit to the customer does have the effect that funds are transferred to Bookit's account with Girobank—in accordance with the obligations of Girobank under cl 3.1.1 of the MSA—that the Vice-Chancellor reached the conclusion that the exemption for which art 13B(d)(3) provides was available in the present case. In my view he was correct to do so.

[46] It was submitted on behalf of the Commissioners that the transfer of funds to the credit of Bookit's account with Girobank was a matter of no importance to the customer; and, in particular, that the customer was unlikely to be aware of—and would probably be indifferent to—whatever arrangements or obligations might exist between Bookit and Girobank under the MSA. I accept that the machinery by which payment would be effected is unlikely to have been in the mind of the customer when he requested and accepted services from Bookit. But, as it seems to me, there can be no doubt that, in requesting and accepting Bookit's services, the customer contemplated and intended that some payment would be made which would enable him, on his attendance at the cinema of his choice, to collect the tickets which he needed; and intended that Bookit would arrange for that. The services which Bookit supplied—as identified by the tribunal—did have the effect which the customer contemplated and intended that they would have. The fact that the customer was indifferent to the machinery by which that effect was achieved seems to me irrelevant. The relevant questions are (i) what services were supplied by Bookit to the customer and (ii) did those services attract the exemption for which art 13B(d)(3) provides. As I have said, I am of the view that the answers which the Vice-Chancellor gave to those questions were correct.

Bookit therefore establishes that by passing the card information together with the authorisation codes to Girobank, the acquirer bank, Bookit, an outsider to the banking system, made the transfer. Bookit's role was somewhat similar to FDR's.

19. The following finding by the Tribunal in relation to non-payment by the customer was quoted at [24] of the Court of Appeal's decision:

Within 1 to 2 days Girobank credits Bookit with the sum for the tickets plus card handling fees debiting the Card issuer which in turn debits the account of the particular customer. In the event that the customer's bank rejects the debit, for example because the account is in overdraft, then Girobank re-credits the Card Issuer and charges back the debit to Bookit.

This must relate to debit card transactions because with a credit card payment the debit would be made to the card issuer which would only later collect payment from the customer. The transmission of the card information, the security information and the card issuers' authorisation codes to Girobank meant that Girobank credited Bookit's account after one or two days, but there is still the possibility of the transaction being reversed if the customer's bank does not pay. It follows that this potential reversal of payments did not mean that Bookit had not made the transfer. (We should like to add that this seems to us to be a surprising fact because one would expect the purpose of obtaining authorisation codes to be that the card issuer guaranteed payment, but there is no doubt that the finding was made and taken into account by the court. Presumably, although there is no finding to that effect, if by the time the payment has been reversed the customer tries to collect the tickets from the machine in the cinema he will not receive them, but he will receive them if he does so before payment is refused.)

20. SDC also looked at an outsider to the banking system effecting transfers. The parties contended:

SDC contests the interpretation according to which the provision covers only the service provided to the end customer of the bank and points out that customers of banks may themselves effect transfers, or have them effected, by shops for example, without any action on the part of the bank.

The Danish Ministry for Fiscal Affairs, on the other hand, submits that even in the situations referred to by SDC the link between the end customer and his bank is decisive. In support of that submission it maintained that, in the situation in point in the main proceedings, it is the bank which has authorised the customer to give it orders and that the service is, on any view, provided to the customer in the bank's name.

…

In cases where the customer effects a transfer or causes a transfer to be effected without any action by the bank, the specific acts which constitute the transfer are carried out either by the data-handling centre and the customer or by the data-handling centre and a third party, the latter acting at the customer's request, or by the data-handling centre acting alone pursuant to a standing order from the customer.

The contractual links between the bank and its customer do not diminish the role of the data-handling centre. It is from those links that the customer derives the right to have transactions effected, even if they are invoiced as services provided to the bank and also alter the bank's financial situation.

The references to "the customer" here are to the shop referred to in [51]; the court refers to the "end customer" where it means the bank's customer, as in [52]. The Court is here concentrating on the role of the data-handling centre, which was the issue in the case, and in [54] it gives three alternatives for the maker of the transfer: the data-handling centre alone, or the data-handling centre with the customer, or the data-handling centre with a third party acting at the customer's request. It did not need to consider whether the customer (shop) was making a transfer because even if it did make a transfer jointly with the date-handling centre exemption would not be in point because the supply by the shop was of the goods which it sold, to which any financial transaction would be incidental. Where this is not the case, we consider that the Court would have said that where the transfer was carried out jointly by the customer and the data-handling centre both of them had made the transfer and accordingly both had made exempt supplies. As in FDR and Bookit, where the customer is not a shop but someone charging for the particular financial service, those decisions show that the exemption applies to the giver of the instructions to the equivalent to SDC, namely BACS in FDR or Girobank in Bookit.

21. Accordingly the authorities establish that an outsider to the banking system who gives an instruction to a party within the banking system, such as BACS, which is bound to carry it out automatically, is itself effecting the transfer and is making an exempt supply.
22. Mr Anderson contends that the facts of this appeal do not fit that conclusion. He says that payment is automatic only if the patient has not cancelled the direct debit with the patient's bank, and if there are funds in the patient's account. The position in Bookit was different because the authorisation code was binding. However, it seems from paragraph 19 above that in Bookit although payment was initially made it might be reversed. FDR is closer factually because FDR was initiating direct debits by BACS, but Mr Anderson contends that FDR's position was different from the Appellant's because it was supplying its services to the banks, not to customers of the banks.
23. On the facts of this case the Appellant iniated the BACS payment which resulted in receipt by the Appellant on day 3 of the cycle. If payment is not made by the customer the Appellant receives a report of unpaid amounts on day 5. Once the file is sent to BACS payment is automatic in the sense that BACS does not have any discretion about payment. Unlike Bookit, here there is no initial payment and then reversal if the customer's bank does not pay. By the beginning of day 3 of a BACS payment cycle one knows whether the customer's bank will pay and so the Appellant either receives payment on day 3 or a report of amounts unpaid on day 5.
24. We do not consider that the position can be different depending on whether payment is initially made and then reversed, or if it is not made in the first place. The BACS cycle takes three days and the transaction is not complete until then. The essential point is that, leaving aside cases where something goes wrong, the action of the Appellant in sending the file to BACS causes the payment to be made automatically from the patients' banks to the Appellant's bank by day 3. In those cases where something goes wrong and there is no payment by the patient to the Appellant, no fee is charged by the Appellant to the dentist, and so there is no supply for VAT, and this is something that can be ignored.
25. Does it make any difference, as Mr Anderson contends, that the Appellant is initiating the transfer on behalf of the dentists, for whom it receives the money as agent, and is therefore providing a service to the dentists, rather than, as in FDR, to the banks? In SDC, as in FDR, the company was supplying a service to the banks which had the effect, as the result of the contractual position between the customer and his bank, of making a transfer that affected the legal and financial position of the bank's customer. In Bookit the company was supplying services to the cardholder for which the cardholder paid an additional fee, so this is a case of supplies otherwise than to a bank.
26. We consider that the Appellant's making the supply to the bank's customer, the dentist, strengthens the case for exemption rather than weakening it. The Danish Ministry's argument in SDC at [52] was that the supply was to the bank and not to the end customer ("provided to the customer in the bank's name," which we understand to mean that the contractual relationship was with the bank only), about which the Court concluded at [57] that "an interpretation restricting application of the exemption provided for by point (3) of art 13B(d) to services provided directly to an end customer is unfounded." If the service had been supplied directly to the end customer and had the result of affecting the customer's legal and financial situation, there is no doubt that the exemption would have applied. Here the Appellant is supplying services to the customer, the dentist, for whom it receives the money as agent.
27. We do not consider that this agency relationship affects the position. It is factually different from Bookit, in which Girobank had no obligation to Odeon although Odeon was also a party to the merchant services agreement. Here, BACS' obligation is to the Appellant and BACS does not know that the Appellant will hold the money as agent for the dentists after taking its charges. The net result is similar and what the recipient does with the money is of no concern to Girobank or BACS respectively. It would be an extremely odd result if, as Mr Anderson contends, the agency relationship meant that the transfer was complete when the Appellant receives the funds and their transfer to the dentists is outside any exemption. That transfer is effected in exactly the same way as the transfer from the patients to the Appellant by sending a BACS file for processing.
28. Accordingly, we conclude that the transfer is within the principle of SDC as forming "a distinct whole, fulfilling in effect the specific, essential functions of a service described" in the exemption for transfers, and having "the effect of transferring funds and entail changes in the legal and financial situation." We consider that factually our case is one where the transfer is made jointly by the Appellant and BACS, which is a data-handling centre, rather than BACS acting on a standing order from the Appellant because there is no existing instruction by the Appellant to BACS; it is the Appellant's instruction to BACS that initiates the transfer. If the payment handling service stood on its own it would be exempt.

Negotiation

29. Mr Peacock contends that the Appellant intermediates between the banks and the dentist and patient to ensure, on behalf of the dentist, that a payment is made by the patient to the dentist. Mr Anderson contends that it was performing administrative functions on behalf of dentists in connection with the receipt of payments which are due to them from their patients. Further, he contends that the dentists on whose behalf the Appellant receives payments are not themselves providing a financial service.
30. The following guidance on the meaning of negotiation in relation to negotiation in securities was given by the ECJ in CSC:

"39. It is not necessary to consider the precise meaning of the word 'negotiation', which also appears in other provisions of the Sixth Directive, in particular, art 13B(d)(1)–(4), in order to hold that, in the context of art 13B(d)(5), it refers to the activity of an intermediary who does not occupy the position of any party to a contract relating to a financial product, and whose activity amounts to something other than the provision of contractual services typically undertaken by the parties to such contracts. Negotiation is a service rendered to, and remunerated by a contractual party as a distinct act of mediation. It may consist, amongst other things, in pointing out suitable opportunities for the conclusion of such a contract, making contact with another party or negotiating, in the name of and on behalf of a client, the detail of the payments to be made by either side. The purpose of negotiation is therefore to do all that is necessary in order for two parties to enter into a contract, without the negotiator having any interest of his own in the terms of the contract.

On the other hand, it is not negotiation where one of the parties entrusts to a sub-contractor some of the clerical formalities related to the contract, such as providing information to the other party and receiving and processing applications for subscription to the securities which form the subject-matter of the contract. In such a case, the sub-contractor occupies the same position as the party selling the financial product and is not therefore an intermediary who does not occupy the position of one of the parties to the contract, within the meaning of the provision in question."

And in Ludwig, Case C-453/05, more specifically in relation to the negotiation of credit in the exemption in art 13B(d)(1) of the Sixth Directive, it was stated at [33] that the existence of a contractual link between the negotiator and a party to the credit agreement was not necessary; what mattered was the nature of the service.

31. Debt Management Associates Limited concerned the negotiation of monthly payments on behalf of debtors who were unable to meet their debts with their creditors, and then collecting and passing on the monthly payments. The Tribunal found that the negotiation was an exempt supply, and it was agreed by Customs that the payment handling was exempt.
32. Because we have decided that the Appellant does take part in the transfer we do not consider that it negotiates by bringing together the dentists and the banks in order to make the payment.

Composite or multiple supply

33. We have found that the service supplied by the Appellant for the three fees comprises a number of elements and is not limited to payment handling. We have to decide the liability of the whole service.
34. The following guidance was given by the European Court of Justice in Card Protection Plan v Customs and Excise Commissioners [1999] STC 270 (to which we have added the point about the English translation made by Lord Rodger in College of Estate Management v Customs and Excise Commissioners [2005] STC 1597 that the equivalent of supply is used consistently throughout and there is no reference to service, as there is in English):

In this respect, taking into account, first, that it follows from art 2(1) of the Sixth Directive that every supply of a service must normally be regarded as distinct and independent and, second, that a supply which comprises a single service from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system, the essential features of the transaction must be ascertained in order to determine whether the taxable person is supplying the customer, being a typical consumer, with several distinct principal services [in French prestations=supply] or with a single service [prestation].

There is a single supply [prestation] in particular in cases where one or more elements are to be regarded as constituting the principal service [prestation], whilst one or more elements are to be regarded, by contrast, as ancillary services [prestations] which share the tax treatment of the principal service [prestation]. A service [prestation] must be regarded as ancillary to a principal service [prestation] if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied (see Customs and Excise Comrs v Madgett and Baldwin (trading as Howden Court Hotel) (Joined cases C-308/96 and C-94/97) [1998] STC 1189 at 1206, para 24).

In those circumstances, the fact that a single price is charged is not decisive. Admittedly, if the service provided to customers consists of several elements for a single price, the single price may suggest that there is a single service. However, notwithstanding the single price, if circumstances such as those described in paras 7 to 10 above indicated that the customers intended to purchase two distinct services, namely an insurance supply and a card registration service, then it would be necessary to identify the part of the single price which related to the insurance supply, which would remain exempt in any event. The simplest possible method of calculation or assessment should be used for this (see, to that effect, Madgett and Baldwin (at 1208, paras 45 and 46)).

35. When applying that test in relation to doctors providing pharmaceutical services to patients who did not have a pharmacy nearby in Dr Beynon and Partners v Customs and Excise Commissioners [2005] STC 55 Lord Hofmann said:

[31]  Besides raising the question of what authority a doctor would have to dispense drugs to patients who were not reg 20 patients, this approach seems to me to involve the kind of artificial dissection of the transaction which the Court of Justice warned against in its judgment in the Card Protection case [1999] STC 270, [1999] ECR I-973, para 29. In my opinion the level of generality which corresponds with social and economic reality is to regard the transaction as the patient's visit to the doctor for treatment and not to split it into smaller units. If one takes this view, then in my opinion the correct classification is that which the NHS has always taken of the personal administration of drugs to non-reg 20 patients, namely that there is a single supply of services.

36. It is not always the case that a transaction can be analysed into parts which are principal and ancillary, as Lord Walker pointed out:

[30] In the course of this appeal there has been much discussion of para 30 of the ECJ's judgment. In my opinion it is clear that this paragraph (which uses the introductory words 'in particular') is dealing with a particular case exemplified by Madgett and Baldwin. It is not asserting that every distinct element of a supply must be a separate supply for VAT purposes unless it is 'ancillary'. 'Ancillary' means (as Ward LJ rightly observed ([2004] STC 1471 at [39]) subservient, subordinate and ministering to something else. It was an entirely apposite term in the discussion in British Telecommunications (where the delivery of the car was subordinate to its sale) and in Card Protection Plan itself (where some peripheral parts of a package of services, and some goods of trivial value such as labels, key tabs and a medical card, were subordinate to the main package of insurance services). But there are other cases (including Faaborg, Beynon and the present case) in which it is inappropriate to analyse the transaction in terms of what is 'principal' and 'ancillary', and it is unhelpful to strain the natural meaning of 'ancillary' in an attempt to do so. Food is not ancillary to restaurant services; it is of central and indispensable importance to them; nevertheless there is a single supply of services (Faaborg). Pharmaceuticals are not ancillary to medical care which requires the use of medication; again, they are of central and indispensable importance; nevertheless there is a single supply of services (Beynon).

37. In this case we have found that the monthly fee paid by the dentist to the Appellant is the consideration for all the supplies made by the Appellant. Mr Peacock categorises this as predominantly a supply of payment handling services, and Mr Anderson as a supply of administrative services. It is possible for us to find that the principal supply is the taxable element, the exempt element or that it should be apportioned. The total supplies made by the Appellant are: payment handling, making reports to the dentists of payments and non-payments; goodwill transfers; support in setting fees; Denplan product training; use of Denplan brand name and logos; advertising the member's practice on the Appellant's website; access to the member-only section of the website which includes a forum; quality audits; complaints handling, and arbitration. We can put on one side those sevices that are provided to members and dentists with a registration facility but no plan patients, which are the use of the member-only section of the website and use of the trademark. Of the remainder, they break down into first, services that are indirectly connected to payment handling, such as reports of payments and non-payments, chasing up non-payments, and goodwill transfers (which are really effecting changes in the dentist to whom payments are made). Secondly, there are services that have no (or a more distant) relation to payments, such as recording changes of patients' addresses, support in setting fees (which are entirely something for the dentist to decide), Denplan product training and advertising the member's practice on the Appellant's website (both of which may lead to the sale of more plans), quality audits, complaints handling, and arbitration.
38. Is this a single bundle of services when considered on a level of generality which corresponds with social and economic reality? We consider that the Appellant's services are not a single service but a number of services of which payment handling is the principal one. It involves large sums of money, and spreading payment to dentists into monthly payments is the reason for the Appellant's existence. Are some of the other services ancillary to payment handling? We remind ourselves that "A service [prestation] must be regarded as ancillary to a principal service [prestation] if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied" and that "'Ancillary' means subservient, subordinate and ministering to something else." We consider that the supplies listed under "first" in the previous paragraph are subservient to payment handling. If payments are made (or not made) one needs a record of them, and if the circumstances change so that the payments need to be made to a different dentist, assisting that change is subservient to making the payments. On the other hand, the supplies listed under "secondly" in the previous paragraph are not subservient to payment handling, they are not a means of better enjoying the payment handling service, and they do constitute an aim in themselves for the dentist. The dentist would regard such things as information that assists him in setting fees, complaints handling and arbitration as something desirable in their own right and unconnected with making transfers. Accordingly they cannot be classed as ancillary to payment handling. We consider that the monthly fee should be apportioned.
39. We adjourn to enable the parties to discuss an apportionment and direct that either party can apply to the Tribunal for a resumed hearing for us to determine it.
40. Accordingly, we allow the appeal in principle to the extent that an apportioned part of the monthly charge is exempt. In our view, since we expect that the exempt part will be a high proportion, the Appellant has substantially succeeded and we direct Customs to pay the costs of, incidental and consequent upon the appeal to be determined in default of agreement by a Taxing Master of the Supreme Court.

JOHN F AVERY JONES

CHAIRMAN

RELEASE DATE: 12 September 2007

LON/06/0784