Zipvit Ltd v The Commissioners for HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lord Sales,Lady Black,Lord Briggs |
| Judgment Date | 01 April 2020 |
| Neutral Citation | [2020] UKSC 15 |
| Date | 01 April 2020 |
| Court | Supreme Court |
[2020] UKSC 15
Lord Hodge
Lady Black
Lord Briggs
Lord Sales
Lord Hamblen
Appellant
Roger Thomas QC
(Instructed by Mishcon de Reya LLP (London))
Respondent
Sam Grodzinski QC
Eleni Mitrophanos
(Instructed by HMRC Solicitor's Office (Somerset House))
Heard on 29 and 30 January 2020
Lord Briggs AND( with whom Lord Hodge, Lady Black and Lord Hamblen agree)
This case is concerned with the right of a trader (in this case, Zipvit) to deduct input VAT due or paid by it on supplies of services to it by a supplier (in this case, Royal Mail), so far as those supplies are used for the trader's own supplies of goods or services to an ultimate consumer. The issue arises in a specific set of circumstances.
The general terms and conditions governing the supply contract between the supplier and the trader provided that the trader should pay the commercial price for the supply plus such amount of VAT (if any) as was chargeable in respect of the supply. As determined by a subsequent judgment of the Court of Justice, the supply should in fact have been treated as standard rated for VAT, so that the trader should have been charged VAT assessed at the relevant percentage of the commercial price for the supply. However, at the time of the supply both the supplier and the trader, acting in good faith and on the basis of a common mistake, understood that the supply was exempt from VAT, so the trader was only charged and only paid a sum equal to the commercial price for the supply. The invoices relating to the supplies in question denoted the supplies as exempt and hence indicated that no VAT was due in respect of them.
The tax authorities (Her Majesty's Revenue and Customs Commissioners, “HMRC”) made the same mistake in good faith. HMRC had inadvertently contributed to the mistake by the parties, by issuing tax guidance containing statements to the same effect.
The effect of the mistake has been that the trader has only paid the amounts equivalent to the commercial price for each supply and there is now no prospect that it can be made to pay, or will pay, the additional amount equivalent to the VAT element of the total price (ie the commercial price plus the VAT due in respect of it) which ought to have been charged and paid in respect of such supplies. Likewise, the supplier has not accounted to HMRC for any VAT due or paid in respect of such supplies, and there is no prospect that it can now be made to account, or will account, to HMRC for such VAT.
Notwithstanding this, the trader now maintains that under article 168(a) of the Principal VAT Directive (2006/112/EC — “the Directive”) it is entitled as against HMRC to make a claim to deduct as input VAT the VAT due in respect of the supplies in question or a VAT element deemed by law to be included in the price charged by the supplier for each supply (and hence deemed by law to be VAT in fact paid in respect of such supply when the trader paid what the parties believed to be the commercial price of the supply). Against this, HMRC contend that in the circumstances of this case, on the proper interpretation of the Directive: (1) there is no VAT due or paid in respect of the supplies in question, so no claim can be made to recover input tax in relation to them, and/or (2) the invoices relating to the supplies in question did not show that VAT was due in respect of the supplies, and since the trader at no stage held invoices which showed that VAT was due and its amount, in compliance with article 226(9) and (10) of the Directive, for this reason also the trader is not entitled to recover input tax in relation to the supplies. The trader responds on point (1) that VAT must be treated as having been paid as part of the price (or as due) and on point (2) that all relevant facts are now known and it can prove by other means the amount of the VAT due or paid on each supply.
The sums claimed by Zipvit as input VAT on the relevant supplies amount to £415,746 plus interest. The present proceedings are a test case in respect of supplies of services by Royal Mail where the same mistake was made. The court has been provided with estimates of between about £500m and £1 billion as the total value of the claims against HMRC.
Royal Mail is the public postal service in the United Kingdom. Article 132(1)(a) of the Directive (and equivalent provisions which preceded it) provides that member states shall exempt “the supply by the public postal services of services other than passenger transport and telecommunications services, and the supply of goods incidental thereto”. In implementing this provision, Parliament and HMRC interpreted it as covering all postal services supplied by Royal Mail. The implementing national legislation, the Value Added Tax Act 1994 (“ VATA”), contained a provision to this effect (Schedule 9, Group 3, paragraph 1) and HMRC issued guidance notes to the same effect.
Zipvit carries on the business of supplying vitamins and minerals by mail order and used the services of Royal Mail. During the period 1 January 2006 to 31 March 2010, Royal Mail supplied Zipvit with a number of business postal services under contracts which had been individually negotiated with Zipvit. The present proceedings concern supplies of one such service, Royal Mail's “multimedia®” service (“the services”).
The contract under which Royal Mail supplied the services incorporated Royal Mail's relevant general terms of business which provided that all postage charges specified as payable by the customer (ie Zipvit) were exclusive of VAT, that the customer “shall pay any VAT due on Postage and other charges at the appropriate rate”, and that “VAT shall be calculated and paid on [the commercial price of the services]”. Accordingly, insofar as VAT was due in respect of the supply of the services, the total price payable by Zipvit for such supply under the contract was the commercial price plus the VAT element.
However, on the basis of the domestic legislation and guidance and the common mistaken view that the services were exempt from VAT, the invoices issued by Royal Mail to Zipvit in relation to the services were marked “E” for exempt, showed no sum attributable to VAT to be due, and charged Zipvit only the commercial price of the services. Zipvit duly paid to Royal Mail the sums set out in the invoices. Zipvit did not at the time of the supplies make any claim to recover input VAT in respect of them.
Since Royal Mail understood the services to be exempt, and since it had set out no charge for VAT in its invoices, it did not account to HMRC for any sum relating to VAT in respect of the supply of the services. HMRC likewise believed the services to be exempt and did not expect or require Royal Mail to account to them for any such sum.
Things proceeded in this way for several years, until the judgment of the Court of Justice of 23 April 2009 in R (TNT Post UK Ltd) v Revenue and Customs Comrs (Case C-357/07) EU:C:2009:248; [2009] ECR I-3025. The Court of Justice held that the postal services exemption applied only to supplies made by the public postal services acting as such, and did not apply to supplies of services for which the terms had been individually negotiated.
On the basis of this interpretation of the Directive and its predecessor by the Court of Justice, in the relevant period the services in the present proceedings should have been treated as standard rated. Royal Mail should have charged Zipvit a total price for the supply of the services equal to the commercial price plus VAT at the relevant rate, and Royal Mail should have accounted to HMRC for that VAT element. As it was, however, Zipvit was not charged and did not pay that VAT element, and Royal Mail did not account to HMRC for any sum representing VAT in respect of the services.
In the light of the TNT Post judgment, Zipvit made two claims against HMRC for deduction of input VAT in respect of the services by a procedure called “voluntary disclosure”: (i) on 15 September 2009 in the amount of £382,599 plus interest, in respect of “input tax paid from the quarter ended 31 March 2006 (due after 1 April 2006) to the quarter ended 30 June 2009”, and (ii) on 8 April 2010 in the amount of £33,147, relating to the periods to December 2009 and to March 2010. These claims were calculated on the basis that the prices actually paid for the supplies must be treated as having included a VAT element.
In the meantime, HMRC was making inquiries with Royal Mail to establish precisely which of its services were affected by the TNT Post judgment.
HMRC rejected Zipvit's claims by letter dated 12 May 2010. This was on the basis that Zipvit had been contractually obliged to pay VAT in relation to the commercial price for the services, but it had not been charged VAT in the relevant invoices and had not paid that VAT element. After review, HMRC upheld that decision by letter dated 2 July 2010.
At this time, the national limitation period of six years under section 5 of the Limitation Act 1980 for a contract claim by Royal Mail to claim the balance of the total price due to it in respect of the supply of the services (ie a sum equal to the amount of the VAT due in respect of such supply, calculated by reference to the commercial price of the services) had not expired. But issuing claims against all Royal Mail's relevant customers affected by the TNT Post judgment, including Zipvit, would have been costly and administratively burdensome for Royal Mail and it had no commercial interest in doing this, and so did not pursue such claims.
At this time, HMRC were within the time limits set out in section 73(6) and ...
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