Input VAT on delivery charges was not recoverable

In Y4 Express Limited v HMRC [2022] UKUT 00040, the Upper Tribunal (UT) found that a company could not recover VAT on delivery charges as its suppliers were not in business. 

• Y4 Express Limited (Y4) arranged for the importation of goods from companies based in China and Hong Kong. It collected the goods from the airport, stored them if required and arranged delivery to the final customer.
• Preferential postage rates were available to Y4, from Royal Mail, using a specific service.
• In 2013, Royal Mail suspended Y4’s access to the service following concerns it was not making accurate declarations.
• In order to retain access to preferential postage rates, Y4 entered into verbal agreements to use Royal Mail accounts set up in the name of an individual (Mr Man) and another company (Colemead Limited).
• Y4 prepared Invoices to be issued by Mr Man and Colemead Limited and sought to recover input VAT on payments that it made in their settlement.
• HMRC disallowed Y4’s input VAT recovery. Y4 appealed to the First Tier Tribunal (FTT).

The FTT upheld HMRC's disallowance of Y4’s input VAT recovery, finding that:

• The arrangements with Mr Man and Colemead Limited were not sufficient to constitute a supply of goods or services for consideration.
  • There was no economic activity carried out.
• Y4 had not received taxable supplies from Mr Man or Colemead Limited relating to delivery services, in respect of which Y4 would be able to reclaim input VAT.

Y4 Appealed to the Upper Tribunal (UT), which upheld the FTT’s decision:

• Y4 could not establish that supplies were made for consideration.
• As found in the Wakefield College case:
  • The supply of goods or services for consideration is a necessary ingredient of an economic activity.
    • The FTT concluded that neither Mr Man nor Colemead Limited were supplying services for consideration. It followed that they were carrying on no economic activity.
  • An enquiry into whether there is an economic activity must be wide-ranging but limited to objective factors.
    • The FTT did not err in law on this point.
• Y4 could also not recover VAT on the basis that it had received the supplies directly from Royal Mail. The economic reality strongly indicated that Royal Mail was supplying its services to Mr Man and Colemead Limited, and not to Y4, as Royal Mail: 
  • Would not have had any right to obtain payment for the services directly from Y4. 
  • Had previously refused to contract with Y4. Had Royal Mail been aware its services were being used by Y4, it is likely it would have withdrawn services from Mr Man and Colemead Limited. 

Useful guides on this topic

Agents and principals
Where someone is acting as agent for a principal, it is possible that the income received by the agent on behalf of the principal is outside the scope of VAT for the agent. What is an agent for VAT purposes? When do these rules apply? 

Appeals: VAT
How do I appeal an HMRC decision? How do I appeal a penalty? How can I request a Statutory Review? 

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. 

External link

Upper Tribunal decision: Y4 Express Limited v HMRC [2022] UKUT 00040

First Tier Tribunal decision: Y4 Express Limited v HMRC [2020] TC07777