Zipvit Ltd v Revenue and Customs (Respondent) (No 2) [2022] UKSC 12 (11 May 2022)
Citation:Zipvit Ltd v Revenue and Customs (Respondent) (No 2) [2022] UKSC 12 (11 May 2022)
Subjects invoked: 'Tax - Transactional Taxes'.
Rule of thumb:If a business is late getting VAT registered, can other businesses who missed out VAT deductions claim a retrospective rebate? If you are one of the many thousands of people/businesses who pays VAT on payments from customers, and used Royal Mail during the period after their privatisation when Royal Mail forgot to include VAT in their bills to you, are you potentially allowed to claim retrospectively you paid Royal Mail VAT entitling you to a big tax rebate on past VAT bills from HMRC? No. Royal Mail after its privatisation did not realise that it had to start charging people VAT, however, people are not allowed to assume that the price they paid to Royal Mail retrospectively had VAT included as part if it. Zipvit paid massive VAT bills to HMRC on payments received from customers for vitamins & suppelements, but Zipvit were also heavy users of Royal Mail transports services, and if Royal Mail had charged Zipvit VAT then Zipvit could have written this off against their own VAT bills from customer payments and made a big saving, however, Zipvit were not entitled to this rebate because VAT was not deemed to have been retrospectively included as a part of the Royal Mail services price.
Background facts:
This case invoked the subject of transactional tax. It particularly invoked the issue of whether a business who has mistakenly forgotten to charge their customers for VAT is presumed retrospectively to have included this part of their original price.
The material facts were that when Royal Mail was run as part of the public sector it did not have to charge people VAT. However, once Royal Mail was privatised, it should then have started charging people VAT, but it did not do so for several years, and Royal Mail only started doing this after a Judgment from the EU Supreme Court affirmed that post-privatisation they should have been doing so. Zipvit received large payments from their customers for the vitamins and supplements they sold, and they paid 20% of this money to HMRC in VAT payments. Zipvit paid large expenses to Royal Mail for their boxes of vitamins and supplements to be transported to their customers, but, Royal Mail did not include VAT as part of the bill, so Zipvit could not deduct these VAT payments from their own bill to HMRC.
Zipvit argued that the prices they were charged by Royal Mail in this period included VAT of 20% retrospectively, and that they should be able to retrospectively deduct this from their past customer payment VAT bills to HMRC entitling them to money back from HMRC. HMRC argued that Royal Mail did not charge Zipvit VAT for transportation, it was not part of the price, and that VAT could not be deemed retrospectively to have been a part of Royal Mail’s price – HMRC argued that this was a fictional price rather than the real price being put forward by Zipvit, and that would have constituted a windfall which people were not entitled to under section 29(2) of the Value Added Tax Regulations 1995. HMRC argued that people were mistakenly undercharged during this period by Royal Mail, but the matter was basically being left at that with people who were undercharged not being chased up for VAT payments.
Judgment:
The Court upheld the arguments of HMRC. They affirmed that when a company has mistakenly not charged people VAT, this is not retrospectively deemed to have been a part of the price they charged. This would be a ‘windfall’ for something which people never paid in the first place in breach of section 29(2) of the 1995 VAT Regulations. Zipvit were not entitled to a rebate on their past customers payments VAT paid to HMRC – this was also a test case as thousands upon thousands of other businesses would also have been owed a rebate as well, not just Zipvit.
Ratio-decidendi:
‘35. In the circumstances of the case, as set out above, Zipvit had no right under the Directive to recover from HMRC any element of input VAT. Moreover, in commercial terms, as the Tribunals and the Court of Appeal correctly pointed out, any payment to Zipvit would have been an unmerited windfall. 36. We therefore agree with their conclusion that, had HMRC considered the exercise of their discretion under regulation 29(2) (VAT Regulations 1995), they would have been bound to have concluded that no payment should be made to Zipvit. There was no sound basis on which it would have been appropriate to use public monies to make any such payment’. Lord Briggs
Warning: This is not professional legal advice. This is not professional legal education advice. Please obtain professional guidance before embarking on any legal course of action. This is just an interpretation of a Judgment by persons of legal insight & varying levels of legal specialism, experience & expertise. Please read the Judgment yourself and form your own interpretation of it with professional assistance.