Y4 Express Ltd v R & C Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 17 February 2022 |
| Neutral Citation | [2022] UKUT 40 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2022] UKUT 40 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Judge Jonathan Richards, Judge Andrew Scott
Tim Brown, Counsel, instructed by SKS (GB) Limited appeared for the appellant
Joseph Millington, Counsel, instructed by the General Counsel and Solicitor for Her Majesty's Revenue & Customs appeared for the respondents
Value added tax – Input tax – Whether entitled to credit for input tax – Whether taxpayer receiving taxable supplies – No – Whether taxpayer received supplies directly from Royal Mail – No – Directive 2006/112, art. 168 – Directive 2006/112, arts. 2 and 9 – Appeal dismissed.
The Upper Tribunal (UT) upheld the previous decision of the First-tier Tribunal (FTT) that the taxpayer did not receive taxable supplies on which input tax could be recovered.
The Upper Tribunal upheld the decision of the First-tier Tribunal (FTT) in Y4 Express Ltd [2020] TC 07777.
Y4's business included arranging for the importation of goods from companies based in China and Hong Kong, storing them if required, and arranging delivery to the final customer. They used the services of several delivery companies, including Royal Mail's (RM) PPI service that offered preferential rates but required them to make daily declarations through an online business account (OBA).
Following a dispute with RM, their access to the PPI scheme was suspended. Two personal friends of the company secretary were persuaded to open OBA's with RM and to allow Y4 to access the account and use RM for deliveries. Purchase invoices from RM were matched in value with sales invoices prepared by Y4 and addressed to itself, and corresponding “whole payments” were made by Y4.
Y4 contended payments, which it described as either income or commission, made in addition to the “whole payments” was consideration for taxable supplies carried out by the two friends, one in his own name, Mr Man, and the other through his personal company, Colemead.
The FTT had to decide whether Mr Man or Colemead were making supplies of services for consideration, and whether they were carrying on an economic activity. Consideration involved reciprocal performance taking place under some form of agreement or framework that established the requisite link between supply and consideration. An economic activity required the supplies to be made for the purpose of obtaining income on a continuing basis.
The FTT had found there was no consideration. Y4 argued some, albeit irregular, payments had been made which must be considered to be consideration. The UT disagreed, citing Tolsma v Inspecteur der Omzetbelasting Leeuwarden (Case C-16/93) [1994] BVC 117. The FTT had to find a legal relationship between Y4 and Mr Man and between Y4 and Colemead and then decide whether the payments constituted reciprocal performance under that relationship.
The FTT had found there was no arrangement to pay income or commission. Both Mr Man and Colemead simply opened the OBA and provided access to Y4. No terms were agreed as to any income to be received from Y4. This was a finding of fact that had not been disputed by Y4.
Since there was no consideration, there could be no economic activity. The UT confirmed the FTT's correct approach to this issue, following the guidance set out in Wakefield College v R & C Commrs [2018] BVC 22.
The second ground of appeal was that the FTT had failed to consider Y4's alternative argument it had received the supplies directly from RM. The UT rejected this contention pointing to the paragraphs of the FTT decision (126–128) where this was considered and rejected.
For their argument to have succeeded Y4 would have had to establish the “economic reality” that RM was supplying services to them directly but RM could not have known Y4 was the effective user of the services since, had it known, it was unlikely it would have continued to make OBA's available. Moreover, RM was invoicing Mr Man and Colemead and would not have had any right to obtain payment from Y4. The UT found this fatal to Y4's argument and agreed with the FTT's conclusion RM was supplying services to Mr Man and to Colemead, not Y4.
Appeal dismissed.
As was acknowledged in the decision, if Y4 had argued the “whole payments” made by Y4 to cover the cost of the postage had been consideration payable to Mr Man and to Colemead, the outcome might have been different since there is no prerequisite for profit in the definition of a supply for VAT purposes, but this was never raised by the taxpayer.
[1] Until 2013, the appellant company (“Y4”) was able to obtain preferential rates on postage from the Royal Mail (“RM”). When RM refused to allow Y4 to continue to use that service, Y4 sought to circumvent the problem by using RM accounts set up in the names of Mr Pat Ning Man (“Mr Man”) and Colemead Limited (“Colemead”). The issue raised in these proceedings is the extent to which Y4 is entitled to credit for input VAT in connection with payments that it made to Mr Man and Colemead.
[2] In a decision released on 10 July 2020 (the “Decision”), the First-tier Tribunal (the “FTT”) held that Y4 was not entitled to input tax credit. The FTT also held that Y4 was not entitled to credit for input tax in respect of goods and services supplied to it by the courier company Yodel and that Y4 was liable to a penalty in respect of inaccuracies in its VAT returns. With the permission of the FTT, Y4 appeals against some, but not all, of the FTT's determinations.
[3] In this section, references to numbers in square brackets are to paragraphs of the Decision unless we say otherwise.
[4] Y4 was incorporated on 27 May 2010. Its business at material times included arranging for the importation of goods from companies based in China and Hong Kong. That business involved it collecting the goods from the airport, storing them if required and arranging delivery to the final customer ([7]).
[5] The FTT made no express finding that Y4 was registered for VAT at material times but it was common ground that Y4 was so registered.
[6] Y4's business required it to use the services of delivery companies including RM. Until 2013, Y4 used RM's Printed Postage Impressions (“PPI”) service. The PPI scheme provided Y4 with access to preferential rates and required it to make daily declarations by means of an online business account (“OBA”) of the items it was sending. In June 2013, RM became concerned that Y4's declarations were not accurate and eventually suspended Y4's access to the PPI scheme. Y4 agreed to pay RM £600,000 ([13]). The FTT did not explain precisely what that payment was for, but it can be inferred that it was to compromise some claim that RM had against Y4 for alleged under-declarations of postage due to RM.
[7] Mr Samuel Yeung was, at material times, the company secretary of Y4. He had a personal friendship with both Mr Man ([14]) and Mr Fung, the sole director and shareholder of Colemead ([93]). Mr Samuel Yeung devised a plan to use his friendship with both men to get around the problems Y4 was having with RM.
[8] The outcome of Mr Samuel Yeung's plan, so far as involving Mr Man, was as follows:
- Mr Samuel Yeung asked Mr Man to open an OBA with RM in Mr Man's name, but on the understanding that Mr Man would permit Y4 to use this account. Mr Samuel Yeung said that the reason for the request was so that Y4's customers would not know that Y4 was itself obtaining goods from another supplier which could have become apparent from statements that Y4 would obtain from RM if Y4 operated an account in its own name. Mr Samuel Yeung did not mention the difficulties that Y4 was having with its own PPI account with RM ([14] and [113]).
- Mr Man agreed to the request which he regarded as a favour to a friend rather than as a business venture ([113]). He opened the OBA with RM in 2012 although this did not become active until July 2013 ([15]). He provided Mr Samuel Yeung with details of his OBA that enabled Y4 to access the account and use RM for deliveries ([16]).
- In practice, Y4 made payments to Mr Man at least equal to sums that RM charged Mr Man in respect of postage charged to his OBA ([21]).
- The FTT appearsto have found that Y4 made some other payments to Mr Man that were additional to the sums referred to in (3) above ([121] and [122]). Parts of these passages of the Decision read as recitations of evidence. However, the FTT's statement at [122] that the documentation provided, however, points to Mr Man having received a payment from Y4 on more than one or two occasions reads as a finding of fact.
- Y4 prepared invoices, addressed to itself, recording sums payable to Mr Man ([24]). The FTT recorded Mr Man's evidence that he could not remember seeing these invoices at the time and that he was not asked to approve them but did not say expressly whether it accepted that evidence or not ([114]).
- Mr Man played no part in dealing with RM and arranging for Y4's goods to be delivered using RM's network. Y4 did all of that, using the access to Mr Man's PPI account that he had provided.
[9] In paragraph [8] above, we have set out the FTT's findings as to what actually happened, including some payments that were in practice made by Y4 to Mr Man. The FTT did not set out all in one place findings as to the precise character of any arrangement under which these payments were made. There is a finding, at [14], that Mr Man regarded the arrangement as involving a “favour to a friend”. There is a finding at [23] that there was no written contract in place between Y4 and Mr Man and instead there was a “verbal agreement”. Read in isolation, that might suggest that the FTT regarded the arrangement as contractual, albeit not in writing. However, the FTT could not have been concluding that there was any contract in place given its finding at [120]:
It is clear that no terms were agreed between Mr Man and Y4 as to...
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Y4 Express Limited v The Commissioners for HM Revenue and Customs [2022] UKUT 00040 (TCC)
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