Zipvit Ltd v Revenue and Customs [2020] UKSC 15

Zipvit claimed input VAT deductions for postal services from Royal Mail that were mistakenly treated as VAT-exempt by all parties. The Supreme Court referred questions to the Court of Justice regarding whether VAT could be deemed 'paid' or 'due' when neither party charged nor accounted for it, and whether alternative evidence could replace compliant VAT invoices.

Facts

Zipvit, a mail-order vitamin supplier, received postal services from Royal Mail between 2006 and 2010. Under their contract, Zipvit was required to pay the commercial price plus any applicable VAT. However, based on HMRC guidance and domestic legislation, all parties believed these services were VAT-exempt. Royal Mail’s invoices showed no VAT charge, and Zipvit paid only the commercial price.

Following the Court of Justice judgment in TNT Post UK Ltd (Case C-357/07) in 2009, it became clear these individually negotiated postal services should have been standard-rated for VAT. Zipvit subsequently claimed input VAT deductions totalling £415,746, arguing that VAT should be treated as embedded in the prices actually paid.

Contractual Position

The contract stipulated that prices were exclusive of VAT and that Zipvit would pay any VAT due. However, Royal Mail never issued corrected invoices or claimed the additional VAT, and limitation periods had expired for both Royal Mail’s contract claims against Zipvit and HMRC’s assessment powers against Royal Mail.

Issues

The case raised two principal questions:

The ‘Due or Paid’ Issue

Whether VAT can be regarded as ‘due or paid’ under Article 168(a) of the Principal VAT Directive (2006/112/EC) when, due to a common mistake, no VAT was actually charged, paid, or accounted for to the tax authority.

The Invoice Issue

Whether a trader can claim input VAT deduction without holding VAT invoices complying with Article 226(9) and (10) of the Directive, which require invoices to show VAT was charged and its amount.

Arguments

Zipvit’s Arguments

Zipvit contended that the amounts paid should be treated as containing embedded VAT, relying on Articles 73, 78 and 90 of the Directive and the Tulică judgment (Joined Cases C-249/12 and C-250/12). Alternatively, even if VAT was not ‘paid’, it should be regarded as ‘due’. On the invoice issue, Zipvit argued that formal invoice requirements could be satisfied by alternative evidence.

HMRC’s Arguments

HMRC argued that allowing the claim would constitute an unmerited windfall for Zipvit at public expense, violating the principle of fiscal neutrality. They emphasised that Royal Mail never acted as collecting agent and no VAT was paid into the public purse. They relied on Véleclair (Case C-414/10), Volkswagen (Case C-533/16) and Biosafe-Indústria (Case C-8/17).

Judgment

The Supreme Court, in a unanimous judgment delivered by Lord Briggs and Lord Sales, determined that neither the ‘due or paid’ issue nor the invoice issue could be regarded as acte clair. The Court decided to refer questions to the Court of Justice of the European Union.

After full argument, the court has decided that neither the ‘due or paid’ issue nor the invoice issue can be regarded as acte clair, and that a reference should be made to the Court of Justice to ask the questions set out at the end of this judgment.

Lower Court Decisions

The First-tier Tribunal dismissed Zipvit’s appeal, finding no VAT was ‘due or paid’ and that Zipvit lacked valid tax invoices. The Upper Tribunal and Court of Appeal upheld this decision, with the Court of Appeal noting that allowing the claim would give Zipvit an ‘uncovenanted bonus’.

Implications

This case has significant financial implications, with estimates of total claims against HMRC ranging between £500 million and £1 billion. The reference to the Court of Justice addresses fundamental questions about the operation of the VAT system when all parties share a common mistake about tax treatment.

The case tests the limits of the neutrality principle in VAT law and the formal requirements for input tax recovery. It also raises questions about whether taxpayer conduct and limitation issues affect the right to deduct input VAT.

Verdict: The Supreme Court referred four questions to the Court of Justice of the European Union, finding that neither the ‘due or paid’ issue nor the invoice issue was acte clair. No final determination was made on the substantive questions pending the CJEU’s guidance.

Source: Zipvit Ltd v Revenue and Customs [2020] UKSC 15