Graham Elliott considers Zipvit and claiming VAT where the supplier has not charged it
In general, you can only reclaim VAT that has been charged by the supplier. But, what happens when you believe the supplier should have charged it? Is the supplier’s omission to charge VAT fatal to an input tax claim?
This was the issue in the case of Zipvit [2014] UKFTT 649 (TC), a customer of Royal Mail, which had wrongly exempted taxable supplies. HMRC, having thought the supplies were exempt, did not assess the tax. Zipvit sought to claim by saying that VAT was included in the price. HMRC refused, and litigation commenced.
The case raises many points, but I focus on two. The first is one of the two reasons why the tribunal decided for HMRC. It is noteworthy that there was no argument from either party on this point, namely an interpretation of article 168 of the Principal VAT Directive. This allows input tax to be reclaimed only where the VAT is ‘due or paid’. Both litigants argued extensively about whether Zipvit, the customer, had paid or was due to pay the VAT. Neither party interpreted this provision, relating to input tax, as referring to VAT payable by the supplier. The tribunal, having thought about it after the hearing, decided that this was the salient point. It decided that VAT had not been paid by Royal Mail and, owing to HMRC’s failure to assess the VAT, none had in practical terms been ‘due’. Thus the input tax claim failed.
This is a test case, as the tribunal acknowledged. Deciding a point against the taxpayer where no argument had been presented on a particular interpretation is unusual. And its strangeness is reinforced by the second detail of this case which I now highlight.
This was that, more than once in the decision, the tribunal chair referred to the fact that her decision was ‘virtually inevitably’ to be appealed by the loser, since it was a test case, and that therefore there was little likelihood that her initial opinions would be the last word on the matter. This is referred to explicitly at the juncture where the decision is made on the above point, without taking any further representations from the parties, which otherwise might have been done (see para 110 of the decision). This approach appears to take little consideration of the fact that appeal courts are supposed to give respect to decisions made by the lower ‘expert’ tribunal. Decisions should not be overturned unless a fault of law arises in the tribunal’s reasoning, even if the appeal court would itself have drawn a different overall conclusion from the facts. This encourages the First-tier Tribunal (FTT) to produce its best possible decision, intended to be as unlikely as possible to be overturned. But when the tribunal chair effectively says that she will not be the determinant and that others will consider it afresh, with new submissions, what then?
Once the FTT effectively disavows its own expert role, it is difficult to imagine that the Upper Tribunal can accord it that level of respect, despite the legal tradition that requires this.
The main decision point seems strange (despite the logic) because it gives HMRC de facto power to deny input tax recovery simply by not assessing output tax. I find that surprising. I feel that the ambivalence expressed by the tribunal as regards its authority will inevitably improve the chances of the taxpayer in reversing the decision on appeal.
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Zipvit: claiming VAT you were not charged
Graham Elliott considers Zipvit and claiming VAT where the supplier has not charged it
In general, you can only reclaim VAT that has been charged by the supplier. But, what happens when you believe the supplier should have charged it? Is the supplier’s omission to charge VAT fatal to an input tax claim?
This was the issue in the case of Zipvit [2014] UKFTT 649 (TC), a customer of Royal Mail, which had wrongly exempted taxable supplies. HMRC, having thought the supplies were exempt, did not assess the tax. Zipvit sought to claim by saying that VAT was included in the price. HMRC refused, and litigation commenced.
The case raises many points, but I focus on two. The first is one of the two reasons why the tribunal decided for HMRC. It is noteworthy that there was no argument from either party on this point, namely an interpretation of article 168 of the Principal VAT Directive. This allows input tax to be reclaimed only where the VAT is ‘due or paid’. Both litigants argued extensively about whether Zipvit, the customer, had paid or was due to pay the VAT. Neither party interpreted this provision, relating to input tax, as referring to VAT payable by the supplier. The tribunal, having thought about it after the hearing, decided that this was the salient point. It decided that VAT had not been paid by Royal Mail and, owing to HMRC’s failure to assess the VAT, none had in practical terms been ‘due’. Thus the input tax claim failed.
This is a test case, as the tribunal acknowledged. Deciding a point against the taxpayer where no argument had been presented on a particular interpretation is unusual. And its strangeness is reinforced by the second detail of this case which I now highlight.
This was that, more than once in the decision, the tribunal chair referred to the fact that her decision was ‘virtually inevitably’ to be appealed by the loser, since it was a test case, and that therefore there was little likelihood that her initial opinions would be the last word on the matter. This is referred to explicitly at the juncture where the decision is made on the above point, without taking any further representations from the parties, which otherwise might have been done (see para 110 of the decision). This approach appears to take little consideration of the fact that appeal courts are supposed to give respect to decisions made by the lower ‘expert’ tribunal. Decisions should not be overturned unless a fault of law arises in the tribunal’s reasoning, even if the appeal court would itself have drawn a different overall conclusion from the facts. This encourages the First-tier Tribunal (FTT) to produce its best possible decision, intended to be as unlikely as possible to be overturned. But when the tribunal chair effectively says that she will not be the determinant and that others will consider it afresh, with new submissions, what then?
Once the FTT effectively disavows its own expert role, it is difficult to imagine that the Upper Tribunal can accord it that level of respect, despite the legal tradition that requires this.
The main decision point seems strange (despite the logic) because it gives HMRC de facto power to deny input tax recovery simply by not assessing output tax. I find that surprising. I feel that the ambivalence expressed by the tribunal as regards its authority will inevitably improve the chances of the taxpayer in reversing the decision on appeal.
