Taxman loses six-year VAT battle

The House of Lords this week denied Customs leave to appeal a decision which allowed an outsourcing company, First Data Europe, to charge for its services without VAT.

Customs had contended that the company’s services, which largely involve processing credit card transactions, were subject to VAT. The case has progressed through the courts since the mid-1990s ending in a Court of Appeal ruling in favour of First Data, previously known as FDR.

The decision will save First Data’s clients tens of millions of pounds in VAT every year, and could encourage banks to outsource more of their services because it has removed an extra cost.

Peter Jenkins, a partner at Ernst & Young, which represented the company, said: ‘This is vindication of the company’s stand in what has been a six-year struggle.’

He added: ‘This puts egg on the face of Customs officials and is an embarrassment for Treasury ministers returning after the election.’

A Customs spokesman described the decision as disappointing and said it would work with the trade on implementing it.

However, he warned that it was likely there would be more litigation in this area.


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