In Zipvit Limited v HMRC [2018] EWCA Civ 1515, the Court of Appeal, agreeing with the Firsttier Tribunal (FTT) and the Upper Tribunal (UT), has held that the taxpayer was not entitled to reclaim VAT in respect of supplies of services which had been wrongly treated as exempt from VAT.


Zipvit supplied vitamins and minerals using Royal Mail services to despatch mail orders. The relevant invoices from Royal Mail indicated that the supplies were exempt from VAT. The issue was whether Zipvit was entitled to input tax credit in respect of the supplies which, at the material time, were treated by Royal Mail and HMRC as VAT exempt, but were actually properly chargeable to VAT as the postal exemption did not apply to individually negotiated supplies (TNT Post UK Ltd v HMRC [2009] ECR I-3025).

Two questions required determination: (1) whether VAT was “due or paid” pursuant to Article 168(a) of the Principal VAT Directive, so that Zipvit was entitled to deduct input tax; and (2) whether the lack of invoices from Royal Mail to Zipvit was central to HMRC’s exercise of discretion under Regulation 29 of the VAT Regulations 1995 to reject Zipvit’s alternative evidence of it having received taxable supplies for the purposes of its trade.

FTT decision

The appeal was dismissed.

In the view of the FTT, the words “due or paid”, referred to the payment of the relevant VAT by Royal Mail to HMRC. The Royal Mail had not declared VAT, issued an invoice showing the VAT, or been assessed to pay VAT by HMRC and there was no enforceable tax claim. As such, the VAT on the supplies was not “due or paid” by Zipvit and it therefore had no right of recovery.

Although HMRC’s exercise of discretion had been flawed as it had not considered all relevant matters, the alternative evidence produced in an attempt to demonstrate that Zipvit had paid the VAT was rejected by the FTT because Zipvit did not suffer the economic burden of the VAT.

Zipvit appealed to the UT.

UT decision

The appeal was dismissed.

In a departure from the FTT decision on question (1), the UT held that the correct question was whether the relevant tax had been paid by, or was due from, Zipvit who sought to deduct it as input tax to Royal Mail. The UT accepted Zipvit’s argument that sums paid by Zipvit to Royal Mail had to be treated as inclusive of VAT at the standard rate as no invoice detailing the VAT charged had been received by Zipfit from Royal Mail.

The UT agreed with the FTT that, although HMRC had failed to consider all relevant matters in exercising its discretion, the alternative evidence should still be rejected because Zipvit did not suffer the economic burden of VAT.

Zipvit appealed to the Court of Appeal.

Court of Appeal judgment

The appeal was dismissed.

Given the amount of tax liability at stake, £1bn, and the wider litigation, the Court was of the view that it was important for the facts to be investigated as fully as possible and it therefore admitted fresh evidence in the form of Royal Mail General Terms in order to achieve a more complete set of contractual documentation. The fresh evidence suggested that the postal charges excluded VAT, which was liable to be paid by the customer, Zipvit.

The Court held that in circumstances where Royal Mail had a contractual right to recover an amount equivalent to VAT from Zipvit, but took no steps to enforce that right, a reference to the CJEU would be needed in order to determine whether Zipvit was entitled to claim a deduction for the VAT element of the original purchase price which was now treated as VAT inclusive. The Court said the position would be the same if, contractually, the parties had expressly agreed for the supplies to be VAT-inclusive.

In respect of the invoices, Zipvit attempted to treat the original VAT exempt payments made as VAT inclusive with no more evidence than the original payments. Zipvit was unable to provide evidence that the VAT had been paid or accounted for by Royal Mail. The Court said that VAT invoices are essential to enable HMRC to check whether the correct entity or individual has paid the VAT required. In the interests of fiscal justice, even if Zipvit was entitled to re-characterise the original payment as VAT inclusive, there would be an obvious detriment to HMRC and the public purse if Zipvit succeeded without first evidencing that Royal Mail had paid the VAT.


This judgment provides helpful clarification as to the entity liable for VAT in respect of the postal exemption for individually negotiated supplies and provides a stark reminder of the need to have clear evidence of tax being paid before attempting to claim a tax credit. Given the amount of tax in issue, it is likely that Zipvit will seek permission to appeal to the Supreme Court.

A copy of the judgment can be viewed here