Zipvit Ltd v The Commissioners for HM Revenue and Customs (No. 2)
| Jurisdiction | England & Wales |
| Judge | Lord Briggs,Lord Sales,Lord Hodge,Lady Black,Lord Hamblen |
| Judgment Date | 11 May 2022 |
| Neutral Citation | [2022] UKSC 12 |
| Court | Supreme Court |
[2022] UKSC 12
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 Mitrophanous QC
(Instructed by HMRC Solicitor's Office (Bush 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 relevant facts occurred before the United Kingdom's withdrawal from the European Union took effect and the outcome depends on the interpretation of provisions in the EU legislation on VAT.
This is the second judgment of the court. In the first judgment ( [2020] UKSC 15; [2020] 3 All ER 1017) we set out the background to the dispute and made a reference to the Court of Justice of the European Union. This was the last such reference made by the Supreme Court. On 13 January 2022 the Court of Justice delivered its judgment answering the questions posed in the reference: ( Case C-156/20) EU:C:2022:2. That judgment is clear in its effect and enables us to determine the appeal without the need for any further hearing.
It will assist the reader of this judgment if we again summarise the principal issues in the case which relate to the interpretation of EU law and then briefly set out the facts.
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). On this appeal it is common ground that the term “due or paid” in article 168(a) means due or paid by the trader to the supplier. However, against the trader's argument 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 for the purposes of article 168(a), so no claim can be made to recover input tax in relation to them (we refer to this as the “due or paid” issue), 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 (we refer to this as the invoice issue). 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 it is not necessary that it produce VAT invoices since all relevant facts are now known and it can prove by other means the amount of the VAT due or paid on each supply.
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 “Mailmedia®” 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...
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