The Supreme Court has released its judgement in Target Group Ltd [2023] UKSC35, dismissing the taxpayer’s appeal. This case concerns the VAT liability of loan administration services supplied by Target Group to Shawbrook Bank. Target Group has treated these services as being exempt from VAT under the exemptions for financial services. Target Group’s role involved giving instructions which automatically and inevitably resulted in payment from the borrowers’ bank accounts to the Shawbrook’s bank account. This was held to be insufficient as it did not have the effect of transferring funds and changing any party’s legal and financial position, which are required for VAT exemption to apply. Further, for Target Group’s supplies to be VAT exempt it would need to be involved in the carrying out or execution of the transfers or payments from borrower’s to Shawbrook Bank.

Target Group also failed in its argument that the inputting of entries into the borrowers’ loan accounts with the lender fell within the VAT exemption. The Supreme Court concluded the loan account was merely a ledger, in which expected payments were recorded and reversed in the event of non-payment, and such a process cannot effect the payment or transfer or result in a change in the legal position of the parties.

As a result, Target Group’s loan administration services should have been subject to subject to standard rated VAT.

This judgement will be of interest to operators in fintech, payment processing and loan administration.

A summary of the Supreme Court judgement is here:

Target Group Supreme Court decision October 2023