Zipvit Ltd v Commissioners for Her Majesty’s Revenue and Customs

Where a supply was mistakenly treated as exempt from VAT, it was not clear whether a customer could regard part of the VAT-exclusive price as VAT “paid” or “due” for the purpose of deducting input tax under article 168(a) of the Principal VAT Directive. It was also unclear whether deduction could be claimed without an invoice stating the taxable amount and VAT, as required by article 226(9) and (10).

These questions were not acte clair where the supplier could no longer recover VAT from the customer and the tax authority could no longer collect it from the supplier. The Supreme Court referred them to the Court of Justice and did not finally determine the appeal.

Royal Mail supplied individually negotiated postal services to Zipvit. Their contract made Zipvit liable to pay the commercial price plus any VAT due. Royal Mail, Zipvit and HMRC mistakenly treated the services as exempt, so Royal Mail charged only the commercial price, issued invoices showing no VAT, and accounted for no VAT.

After the Court of Justice held that the exemption did not extend to individually negotiated postal services, Zipvit claimed £415,746 plus interest as deductible input VAT. It argued that VAT should be treated as embedded in the sums already paid or as VAT “due”. Alternatively, it relied on evidence other than compliant VAT invoices.

The First-tier Tribunal, Upper Tribunal and Court of Appeal dismissed its claims. The Court of Appeal’s decision was reported at [2018] EWCA Civ 1515; [2018] 1 WLR 5729. The Supreme Court had to decide whether article 168(a) of the Principal VAT Directive permitted the deduction and whether article 226(9) and (10) required compliant VAT invoices in these circumstances.

1. Questions referred to the Court of Justice; the appeal was not finally determined. Lord Briggs and Lord Sales delivered the judgment, with which Lord Hodge, Lady Black and Lord Hamblen agreed. Neither the “due or paid” issue nor the invoice issue was acte clair. The court therefore referred four questions concerning the proper interpretation of the Principal VAT Directive.

2. The first two questions asked whether, where a supply had mistakenly been treated as exempt, the price actually paid should be treated as comprising a lower net amount and VAT. The Court of Justice was asked whether that VAT could be deducted under article 168(a) as VAT “paid” or, alternatively, as VAT “due”. The circumstances included contractual terms requiring the customer to pay VAT in addition to the commercial price, the supplier’s inability to recover that VAT from the customer, and the tax authority’s inability to collect it from the supplier.

3. The third question concerned the invoice requirement. The invoices described the supplies as exempt and did not state a taxable amount or VAT as required by article 226(9) and (10). It was uncertain whether the customer could nevertheless deduct input VAT by proving through other evidence the amount allegedly paid or due.

4. The fourth question concerned matters potentially relevant to those issues. The Court of Justice was asked whether account should be taken of any defence, including legitimate expectation, which the supplier might have against an assessment. It was also asked whether it mattered that the customer knew, or had the same means of knowing as the supplier and tax authority, that the supply was taxable and could have offered to pay the additional VAT but did not do so.

5. The court did not decide that VAT was embedded in the price, that VAT remained “due”, or that alternative evidence could replace a compliant invoice. Those substantive questions remained unresolved pending the reference.

1. United Kingdom Supreme Court: Held that neither principal issue was acte clair and referred questions to the Court of Justice. The appeal was not finally determined.

2. Court of Appeal: Dismissed Zipvit’s appeal: [2018] EWCA Civ 1515; [2018] 1 WLR 5729. It regarded the “due or paid” issue as not acte clair, but held that compliant VAT invoices or supplementary evidence of Royal Mail’s payment to HMRC were necessary. It regarded the invoice issue as acte clair.

3. Upper Tribunal (Tax Chamber): Dismissed the appeal. It upheld the First-tier Tribunal on the invoice issue and HMRC’s discretion under regulation 29(2), although its reasoning on “due or paid” differed.

4. First-tier Tribunal (Tax Chamber): Dismissed Zipvit’s appeal. It held that no VAT was “due or paid”, that Zipvit lacked valid tax invoices, and that HMRC would properly refuse to accept alternative evidence under regulation 29(2).