First-tier Tribunal

Zipvit Limited [2014] UKFTT 649 (TC03773)

Following an earlier judgment of the Court of Justice in TNT Post UK Ltd (Case C-357/07), Zipvit Limited (along with many other taxpayers) submitted claims for the repayment of input VAT purported to have been paid to Royal Mail. In TNT, the CJEU had ruled that, where services provided by a Member State's Universal Service Provider (Royal Mail in the UK), were subject to individual negotiation between the provider and its customer, such services could not benefit from VAT exemption. As a result, it transpired that such services were, in fact, taxable.

Zipvit argued before the Tribunal that, if the services provided by Royal Mail were taxable, it was thus entitled to reclaim an amount of the total price paid to Royal Mail as Input Tax. This was on the basis that UK VAT law stipulates that the 'taxable amount' for any supply, is the amount paid by the customer including any VAT included in the price. Zipvit argued, in effect, that as the supply it had received from Royal Mail was, in fact, a taxable supply, (and not an exempt supply), the price it had paid must have included an amount of VAT. Logically, therefore, it was entitled to reclaim that VAT as Input Tax.

The First-tier Tribunal has rejected that contention. The Judge considered that, whilst it was clear the supplies made by Royal Mail were taxable supplies, no VAT had ever been brought to account on those supplies by Royal Mail nor had the VAT been assessed by HMRC as due. The VAT Directive stipulates that for Input Tax to be reclaimable, the VAT chargeable to him by the supplier must be due from or paid by the supplier. It was clear in this case that even though the supplies were taxable, VAT was not due (as Royal Mail had neither accounted for it on any return nor submitted any subsequent voluntary disclosure and neither had HMRC demanded payment of the tax) nor had it been paid. Consequently, Zipvit was NOT entitled to reclaim any VAT purportedly paid within the contract price.

Comment – This is the first step in what is likely to be a long and arduous battle. The Judge in this case even acknowledged that the matter is highly likely to be appealed and litigated further. Her decision that, for Input Tax to be reclaimable by the customer, the corresponding Output Tax must be due, or have been paid by the supplier is a new approach which was not specifically argued by the parties at the hearing. Businesses with similar claims as Zipvit will need to keep a close eye on the progress of the case through the higher courts.

For further information in relation to any of the issues highlighted in this Case Alert please contact:

The Regions Stuart Brodie stuart.brodie@uk.gt.com

London/South East Karen Robb karen.robb@uk.gt.com

The Midlands Mike Sheppard mike.sheppard@uk.gt.com

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