No input VAT recovery as VAT was not due or paid

In Zipvit Ltd v HMRC (Case C-156/20) (13 January 2022), the CJEU found that VAT was not due or paid on Mailmedia services supplied by Royal Mail. This blocked Zipvit Ltd from recovering input VAT on the supplies.

• Zipvit Ltd (Zipvit) used Royal Mail to despatch mail orders and distribute advertisements.
• Both Royal Mail and HMRC believed that the Mailmedia supplies provided by Royal Mail were exempt from VAT as public postal services.
  • This was shown to be incorrect in the Court of Justice of the European Union (CJEU) case of TNT Post UK (Case C-357/07), which found that individually negotiated services were not exempt from VAT.
  • VATA 1994, Sch 9, Group 3 was subsequently revised in 2011
• Zipvit claimed that the amount it paid to Royal Mail was to be treated as inclusive of VAT at the standard rate.
  • This would entitle Zipvit to a VAT recovery exceeding £415,000.
• HMRC took the view that the amount charged by Royal Mail 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. Zipvit would be left in the same position as before, as would 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.

In July 2021, the EU Advocate General (AG) Dismissed Zipvit’s input VAT claim on the basis that a right to recover input VAT could not be established in the absence of a VAT invoice.

• For the VAT to be recoverable by Zipvit, it must have been due or paid and evidenced by a VAT invoice.

Departing from the AG’s decision, the CJEU has issued its judgement, finding that:

• For the purposes of Article 168(a) of the Principal VAT Directive, VAT cannot be regarded as being due or paid (and is therefore not recoverable by Zipvit) where:
  • Due to an incorrect interpretation of EU law by the national authorities, the customer and supplier have mistakenly assumed the supplies were exempt from VAT.
  • The invoices issued do not refer to VAT.
  • The contract between the customer and supplier provides that if that VAT were due, the customer is liable for bearing the cost of it.
  • No steps to recover the VAT were taken in good time, meaning that any action by the supplier and the tax administration to recover the unpaid VAT is time-barred.

Because it could not be regarded that VAT was due or paid on the supplies by Royal Mail, VAT could not be recovered by Zipvit.

As Zipvit's case fell at the 'due or paid' hurdle, it was not necessary to consider whether the absence of a VAT invoice impacted a deduction being allowed.

Useful guides on this topic

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.

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 discretion to allow defective invoices. 

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? 

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.

External link

Zipvit Ltd v HMRC (Case C-156/20) (13 January 2022)