The Court of Appeal has issued a unanimous judgment in the appeal by Zipvit Ltd (Zipvit) against the judgment of the Upper Tribunal. Zipvit, like many other businesses, contracted with Royal Mail to supply delivery services. At the relevant time, these services were treated by Royal Mail, Zipvit and HMRC as being exempt from VAT under the UK’s implementation of the ‘postal services’ exemption. However, following the Court of Justice judgment in the ‘TNT’ case in 2009 (which ruled that VAT exemption only applied to universal postal services), it became clear to all parties (including HMRC) that the mailmedia service provided by Royal Mail should have been liable to VAT at the standard rate. On that basis, Zipvit submitted a claim for a refund of the input VAT purportedly included in the price it had paid to Royal Mail. HMRC rejected that claim and Zipvit appealed to the First-tier Tax Tribunal (FTT). The FTT dismissed the appeal as did the Upper Tribunal. Now, the Court of Appeal has dismissed Zipvit’s appeal. The judgment issued on 30 June 2018 dismisses the appeal on the basis that Zipvit had no valid VAT invoice to support its claim. A fact regarded as a fatal flaw.

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Case alert
Zipvit Ltd
July 2018
Summary
The Court of Appeal has issued a
unanimous judgment in the appeal by
Zipvit Ltd (Zipvit) against the judgment of
the Upper Tribunal.
Zipvit, like many other businesses,
contracted with Royal Mail to supply
delivery services. At the relevant time,
these services were treated by Royal
Mail, Zipvit and HMRC as being exempt
from VAT under the UK’s implementation
of the ‘postal services’ exemption.
However, following the Court of Justice
judgment in the ‘TNT’ case in 2009
(which ruled that VAT exemption only
applied to universal postal services), it
became clear to all parties (including
HMRC) that the mailmedia service
provided by Royal Mail should have
been liable to VAT at the standard rate.
On that basis, Zipvit submitted a claim
for a refund of the input VAT purportedly
included in the price it had paid to Royal
Mail. HMRC rejected that claim and
Zipvit appealed to the First-tier Tax
Tribunal (FTT). The FTT dismissed the
appeal as did the Upper Tribunal.
Now, the Court of Appeal has dismissed
Zipvit’s appeal. The judgment issued on
30 June 2018 dismisses the appeal on
the basis that Zipvit had no valid VAT
invoice to support its claim. A fact
regarded as a fatal flaw.
Court of Appeal
The Court of Appeal has unanimously dismissed Zipvit’s appeal in this case. The issue is
reasonably straightforward. At the relevant time, Royal mail provided delivery services to
Zipvit under the terms of a contract agreed between the parties. At the time, both parties were
of the view that the service being provided by Royal Mail qualified for exemption from VAT.
However, following the judgment of the Court of Justice in a UK referral in the case of TNT
Post UK Ltd – which established that individually negotiated contracts between the Postal
service and a customer did not qualify for VAT exemption, Zipvit (along with many other
Royal Mail customers) concluded that, if the delivery services were taxable, then the amounts
paid to Royal Mail must have included any VAT that was due. Accordingly, Zipvit submitted a
claim to recover that VAT but HMRC refused to pay the claim. Zipvit was chosen to be a lead
case in the ensuing litigation.
At the FTT, the judge dismissed Zipvit’s appeal on the basis that Royal Mail had neither
declared nor paid and neither had HMRC demanded any Output VAT on the supplies in
question. Zipvit appealed to the Upper Tribunal which, again, dismissed the appeal but for
different reasons. The Upper Tribunal concluded that the FTT was wrong to dismiss the
appeal on the grounds that the output VAT was neither due nor paid by Royal Mail – VAT law
does not impose a condition for Input VAT recovery that the supplier must have paid over the
Output VAT. However, VAT law does impose a condition that the claimant must have a valid
VAT invoice to substantiate his claim. As Royal Mail had never issued a VAT invoice in
respect of the supplies in question, the Tribunal concluded that Zipvit was not entitled to claim
any VAT purportedly included in the price.
Zipvit appealed to the Court of Appeal. There were two main arguments for it to consider.
Firstly, whether Zipvit had, as a matter of fact, paid any VAT to Royal Mail in relation to the
Mailmedia delivery service and, if so, whether Zipvit was entitled to reclaim that VAT in
circumstances where Royal Mail has never issued the required VAT invoice. On that point the
Court of Appeal concluded that, in the circumstances, it would, ordinarily have referred the
matter to the CJEU. However, the Court of Appeal decided that the second issue (the
absence of a valid VAT invoice) was fatal to Zipvit’s case. It is a fundamental requirement of
the EU’s VAT system to require that, before a claim for input VAT can be considered, the
claimant must possess a VAT invoice from the supplier. Provision of an invoice which
complies with the requirements of the VAT Directive is essential to the proper performance by
HMRC of its monitoring functions in relation to UK VAT, and is needed as evidence that the
supplier has duly paid or accounted for the tax to HMRC.
As the Court considered that the absence of a VAT invoice was ‘fatal’, there was no need for
it to refer the first issue to the Court of Justice. – Zipvit’s appeal was dismissed.
Comment – the amount of input tax purportedly at stake in this and in related cases is
reported in the judgment to be circa £1 billion. In light of this, it is possible, despite the
unanimous judgment, that Zipvit will seek permission to appeal to the Supreme Court.
If permission is granted, it seems that Zipvit will have an uphill struggle. The Court of
Appeal recognised that all parties were agreed at the time that the supplies were
exempt from VAT and that a successful claim by Zipvit would provide it with a fiscal
windfall.
Stuart Brodie
Scotland
T +44 (0)14 1223 0683
E stuart.brodie@uk.gt.com
Karen Robb
London & South East
T +44 (0)20 772 82556
E karen.robb@uk.gt.com
Vinny McCullagh
London & South East
T +44 (0)20 7383 5100
E vinny.mccullagh@uk.gt.com