23 March 2018
We had a very interesting case in this otherwise arcane area, with the snappy name of: ZipVit. ZipVit has tried something fairly ambitious, namely to claim VAT on a cost which had been charged without VAT. This related to postal services bought, ostensibly, on an exempt basis from Royal Mail, where it was found later that the service ought to have been taxed. HMRC decided not to assess Royal Mail, and Royal Mail continued to exempt the service until a point in time when it conceded that VAT had to be charged. ZipVit alleged that it had always been charged VAT within the negotiated price, and should be able to receive an input tax claim. It had no invoices, but that is not necessarily a bar to claiming VAT which has been incurred.
HMRC did not want to reimburse input tax which it had not chosen to collect from Royal Mail. The First Tier Tribunal decided in favour of HMRC on the interesting basis that the Principal VAT Directive states that input tax can be claimed only where it is ‘due or paid’. There was a debate in the hearing as to whether ZipVit had actually paid VAT, or whether it was potentially going to receive a windfall because it had paid no VAT and therefore should not claim it. After the hearing the tribunal decided that the law did not deal with that, but said that VAT could not be claimed by the customer unless it was due or paid by the supplier to HMRC. Since Royal Mail had not paid any VAT to HMRC, the question was whether it was ‘due’. The tribunal concluded that HMRC was only due any VAT if it assessed for it, which it had deliberately chosen not to do. That decided the case against ZipVit.
This was a curious decision in that it appears to give HMRC overriding power to determine whether a party to a fixed price contract ought to be able to claim VAT that ought to have been charged. The logic of the decision has its attractions, but the commercial consequences appear very unattractive. It is bound to be appealed, so we will see how it progresses.