EU Advocate General rules that VAT deductions require a VAT invoice

In C-156/20 Zipvit Limited v HMRC, the EU Advocate General (AG), on referral from the Supreme Court, ruled that whilst the principle of a deduction for VAT existed even when no VAT had been charged, no deduction was possible without a VAT invoice.

• Zipvit used Royal Mail to despatch mail orders and distribute advertisements.
• The Royal Mail and HMRC both believed that the Mailmedia supplies provided were exempt from VAT as public postal services. This was shown to be wrong in the European Court (CJEU) 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.
• Action to recover the VAT due to Royal Mail from Zipvit and the VAT owed by Royal Mail to HMRC is no longer possible due to it being out of time.

The Court of Appeal found in favour of HMRC. On appeal, the Supreme Court referred the following questions for a preliminary hearing to the CJEU:

• Given the circumstances, should the EU VAT Directive (Article 168(a)) be interpreted to mean that the amount paid is a combination of the net chargeable amount and the relevant VAT so that a taxable person can deduct input VAT as if actually paid?
• Alternatively, does Art 168(a) allow for a deduction of VAT that was 'due'?
• And in those circumstances, can a deduction be claimed if there is no VAT invoice?

The AG's opinion was as follows:

• The Commission's view is that the matter is very simple: if there is no VAT actually paid, there is no deduction available. The AG believed this to be too simple.
• Art 168(a) states a taxable person may deduct VAT from a VAT liability if there is VAT due or paid in respect of a supply of goods. This provides a principle of deduction that does not require VAT to have been paid, simply have to become chargeable (Art 167), as in this case. The supply was chargeable to VAT and should have been paid. The fact that it was not, does not prevent the right of deduction arising.
• But: Art 178 modifies that right by requiring a VAT invoice in order to exercise the right of deduction. The VAT invoice is the instrument by which the recipient of the supply knows that VAT is chargeable and the correct rate and amount of VAT to be paid (and so, reclaimed).
• This would then be supplemented by any domestic requirements, however, the EU Directive was transposed directly into VATA 1994, so that the UK's domestic requirements mirror the EU Directive.
•  There is nothing in the existing EU VAT case law that contradicts this view.

The AG ruled that in the absence of a VAT invoice, there could be no deduction and all other issues were therefore not of consequence.

Useful guides on this topic

£1 billion Royal Mail VAT bill
Court of Appeal case summary

What constitutes a valid VAT invoice?
What needs to be included on a VAT invoice? Can you claim back VAT without an invoice? What evidence do you need to claim input VAT? A valid VAT invoice is required to reclaim input VAT. HMRC have the discretion to allow defective invoices. 

Time of supply
The time of supply of goods or services determines the date on which VAT becomes due. There are a number of different rules which must be considered.

Reclaims and unjust enrichment
When can VAT reclaims be made? What are the time limits? What is unjust enrichment? Why might unjust enrichment prevent HMRC making VAT repayments? 

External link

Case C-156/20 Zipvit Limited v HMRC