In Zipvit Limited v HMRC [2018] EWCA Civ 1515, the Court of Appeal dismissed the taxpayer's appeal and found the supply by Royal Mail, treated erroneously as exempt was the VAT exclusive amount.
This lead test case was said to be worth £1 billion due to the large number of other cases standing behind it.
- Zipvit used Royal Mail to despatch mail orders and to distribute advertisements.
- The Royal Mail and HMRC both believed that the Mailmedia supplies provided were exempt from VAT as public postal services but this was shown to be wrong in the European Court case of TNT, which found that individually negotiated services are not exempt.
- Zipvit claimed that the amount paid to Royal Mail was to be treated as VAT inclusive at the standard rate and would therefore entitle them to a £400k+ VAT reclaim.
- HMRC took the view that the amount charged was the net amount and VAT should be added to it. This would mean Royal Mail would charge an additional 20% to Zipvit that it could then recover, such that Zipvit is left in the same position as it currently is, as is HMRC.
One of the main obstacles to the claim was the lack of a VAT invoice:
- The requirement for a person exercising the right to reclaim VAT must produce a VAT invoice evidencing payment of the relevant VAT.
- The invoices provided by Royal Mail included all information required, except for the details of the charge to VAT (as Royal Mail believed the supply to be exempt).
- The purpose of the VAT invoice is to ensure that the person issuing the invoice has accounted for the VAT. The invoices issued show the complete opposite.
- Without a VAT invoice supporting Zipvit’s contention, there are no grounds which HMRC could properly conclude that Zipvit should be allowed a deduction when no VAT will be paid by Royal Mail. This would mean that the refund became a bonus for Zipvit funded by the public purse.
The other issue in the case was whether VAT had become due or paid by Zipvit, a requirement for the VAT recovery:
- VAT shall become chargeable when goods or services are supplied based.
- This means VAT became due at the Time of the supply to Zipvit was made.
- At the hearing, HMRC produced additional material in support of its case. This was admitted mainly due to the fact that the amount at stake was so large when considering the other cases and therefore it was vital to get the facts correct.
- The additional information, being the general terms and conditions of the Royal Mail supply, stated that all charges should be considered exclusive of VAT unless expressly stated otherwise.
- The conditions also gave the Royal Mail the ability to add any VAT that became due to the supply.
Case law led to the judge’s conclusion that if Royal Mail had no contractual right to recover an additional amount equivalent to VAT from Zipvit, the supply would have been treated as VAT inclusive and Zipvit would have been treated as paying the VAT due.
If Royal Mail had a contractual right to recover the VAT but did not enforce it, the judge admitted that referral to the CJEU would be necessary as to whether the amount already paid by Zipvit should be considered a part payment of the supply, which is split between part payment of net and part payment of VAT.
The judge decided not to refer this second point to the CJEU as the appeal already failed due to the lack of a VAT invoice.
The appeal was dismissed.
Links
Reclaims and unjust enrichment
What constitutes a valid VAT invoice?
External link: Zipvit Limited v HMRC [2018] EWCA Civ 1515
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