Zipvit Ltd v The Commissioners for HMRC

A taxable customer cannot exercise a right to deduct input VAT by retrospectively treating a payment as VAT-inclusive where it has neither a compliant VAT invoice nor other evidence that the supplier paid or accounted for the relevant tax. The formal invoice requirements may yield where the tax authority has sufficient information to verify the substantive conditions. They do not excuse the absence of the VAT rate and amount, and of evidence enabling the authority to monitor the corresponding tax.

Where a supplier has no contractual right to recover later-discovered VAT, the original price must in principle be treated as VAT-inclusive under Value Added Tax Act 1994, section 19(2). That issue did not affect the result because the invoice requirement was fatal.

Zipvit, a fully taxable mail-order trader, paid Royal Mail for Mailmedia services. Both parties treated the supplies as exempt from VAT. Following the CJEU decision in TNT Post, it was accepted that the specimen Mailmedia supplies were standard-rated.

Zipvit claimed input tax on the footing that the prices it had paid included VAT. Royal Mail had neither issued VAT invoices showing standard-rate VAT nor accounted for output tax on those supplies. The First-tier Tribunal dismissed the appeal: [2014] UKFTT 649 (TC). The Upper Tribunal also dismissed it: [2016] UKUT 294 (TCC).

The Court of Appeal admitted further contractual material and considered whether the absence of a compliant VAT invoice prevented deduction.

1. Appeal dismissed. The absence of a VAT invoice complying with Articles 226(9) and (10) of the Principal VAT Directive 2006/112/EC was fatal to Zipvit’s claims. Zipvit could not produce an invoice stating the VAT rate and amount. Nor could it provide supplementary evidence that Royal Mail had paid or accounted for the tax which Zipvit sought to deduct.

2. The Court applied the distinction between substantive entitlement and formal conditions for its exercise. Defects concerning the description or date of a supply may be cured if the tax authority has enough information to establish the substantive conditions. That principle did not extend to an invoice which recorded the supplies as exempt and supplied no evidence of the relevant VAT. The invoice requirements enable HMRC to monitor payment of tax by the supplier as well as the recipient’s deduction. Regulation 29(2) of the VAT Regulations 1995 could not assist Zipvit on those facts.

3. The Court rejected the First-tier Tribunal’s view that the relevant question under Article 168(a) was whether Royal Mail had paid, or was liable to pay, output tax to HMRC. The question was whether VAT was paid by, or due from, Zipvit to Royal Mail. It also declined to adopt the tribunals’ analysis based on Zipvit’s lack of an economic burden.

4. The further contractual terms were admitted under CPR rule 52.21(2). They made the charges exclusive of VAT and obliged Zipvit to pay VAT due. If determination of the resulting “due or paid” issue had been necessary, a CJEU reference would have been required. Conversely, if Royal Mail had lacked a contractual right to recover further VAT, the original price would have been VAT-inclusive and Zipvit would in principle have paid its VAT element. Those issues did not require decision because the invoice point disposed of every claim.

• Court of Appeal (Civil Division): Zipvit’s appeal was dismissed: [2018] EWCA Civ 1515.
• Upper Tribunal (Tax and Chancery Chamber): dismissed Zipvit’s appeal from the First-tier Tribunal: [2016] UKUT 294 (TCC).
• First-tier Tribunal (Tax Chamber): dismissed Zipvit’s appeal against HMRC’s refusal of its input-tax claim: [2014] UKFTT 649 (TC).