Court rules in favour of HMRC in case concerning goods/services which were wrongly assumed by the parties to be exempt from VAT at the time of supply


Re: ZIPVIT Ltd v Commissioner for HMRC [2018] EWCA Civ 1515

This appeal raises some important questions of principle in the law of VAT. They arise when supplies of goods or services, which were wrongly assumed by the parties to the relevant transactions and by the Commissioners for HMRC to be exempt from VAT at the time of supply, are later discovered to have been subject to the standard rate of tax when they were made, following a decision to that effect by the CJE. Where the recipient of those goods or services was itself a registered trader which made taxable supplies on which it accounted for output tax, the basic question is whether, once the true position has become known, the recipient is in principle entitled to recover as an input tax credit the tax element of the consideration which it paid for the original supplies. If so, does it make any difference if the supplier has failed to pay the tax which should have been paid on the original supplies, and if the recipient is in consequence unable to produce a tax invoice from the supplier showing the amount of the input tax which it seeks to recover?

The Court dismissed the appeal holding that no support could be found in either case for the proposition that a right to deduct may be recognised and given effect without production of a VAT invoice showing that the tax in question has been paid by the supplier. Indeed, the need for a VAT invoice which complies with the Principal VAT Directive 2006/112/EC, art 226(9) and (10) was fatal to the claimant’s case, whether or not the new contractual material is admitted, and whether or not the original purchase price was agreed to be inclusive of VAT. It also followed that it was unnecessary to make a reference to the CJEU on the first main issue, because all the claims must anyway fail on the second issue.

Eleni Mitrophanous was involved in this case.