Not as far as HMRC would appear to want it to. The First-tier Tribunal’s procedural decision in Motorplus is another example of somewhat extraordinary conduct by HMRC and suggests that HMRC should look at updating the way they discuss the Zipvit case in their internal guidance on evidence to claim input tax (at VIT63100).

What is Motorplus about?

The taxpayer sought to reclaim input tax on supplies for which it had not received VAT invoices because the relevant suppliers treated the supplies as exempt. The taxpayer, however, argued that the supplies were taxable, and it should, therefore, be allowed to recover input tax based on the alternative evidence it had provided. HMRC denied the claim, based on Zipvit.

What did Zipvit decide?

Zipvit concerned supplies of postal services which both supplier and recipient had thought exempt, but which, it turned out, were in fact taxable. The contract would have allowed the supplier to charge the recipient an additional amount in respect of VAT, but the supplier never actually asked for such additional payments and also did not issue VAT invoices to Zipvit. In these circumstances, the Supreme Court (following a referral to the CJEU) decided it was right to deny a claim for input tax recovery, given that, on the proper construction of the contract, Zipvit had only ever paid the commercial price of the supply and no amount that could be recovered as input tax. 

This conclusion made irrelevant the question whether having a VAT invoice is a prerequisite for input tax recovery and the Supreme Court refused to rule on the issue. It noted that there “may have to be debate on another occasion whether the judgment of the Court of Justice in this case has any bearing on the reasoning of the Tribunals and the Court of Appeal in relation to this issue” (para 33). 

Does Zipvit cover Motorplus?

No – as the FTT points out, there is a fundamental difference between Zipvit and Motorplus. Unlike in Zipvit where the contractual price was VAT-exclusive, the price in Motorplus was inclusive of VAT. So, again unlike in Zipvit, if the supplies were taxable, the applicable VAT would have been embedded in the contractual price (and paid by the taxpayer). Then the question of recoverability would seem to turn on whether having a VAT invoice is a mandatory prerequisite. 

At this point, it is not, however, clear whether the Motorplus case will, in fact, turn on the invoice issue because there is a more fundamental question that has to be resolved first – whether the supplies received by Motorplus were subject to VAT in the first place. And this gets to the crux of the procedural issue that the FTT decided here. 

What did the FTT say about HMRC’s approach to the matter and procedural point at issue?  

If HMRC had “approached [Motorplus’] claim correctly, they would have realised that Zipvit was not an appropriate basis on which to deny the claim and that, instead, they were required to reach a view on whether the supplies in question were exempt or taxable before they could conclude that no VAT input tax had been incurred by” Motorplus. Instead, they made two related mistakes: to say that Motorplus and the suppliers had agreed the supplies were exempt (when Motorplus was telling HMRC it thought they were taxable) and to consider the matter on all fours with Zipvit (when it was not).  

As a result of these mistakes, HMRC never considered or decided whether the supplies received by Motorplus were taxable and this, they argued before the FTT here, meant Motorplus’ appeal should be struck out. Because HMRC had made no decision on the taxability of the services, HMRC argued that the FTT had no jurisdiction to consider this point during an appeal under section 83(1)(c) of the Value Added Tax Act 1994. This meant the taxpayer’s claim had no reasonable prospect of success and should be struck out. 

The FTT, however, confirmed that it has the required jurisdiction and denied HMRC’s strike-out application. 

In doing so, the FTT commented on HMRC’s conduct of the matter. Nine paragraphs towards the end of the decision are devoted to this. Two sentences are particularly worth highlighting: “instead of apologising for the mistakes outlined above, [HMRC], in making the current application to strike out the appeal, have sought to take advantage of those mistakes…It is regrettable that the Respondents have now sought to strike out the appeal in reliance on the fact that they did not adopt the correct approach.” Even more regrettably, this is not the only instance of recent FTT decisions highlighting rather extraordinary conduct by HMRC. 

In BGC Services Holdings, the FTT took the unusual step of publishing a decision on an application for permission to appeal procedural points. HMRC had assessed c. £100 million under the salaried members rules with a covering email stating that “the accompanying determination letters are self-explanatory” and then asked the FTT to direct the taxpayer to particularise the arguments in its grounds of appeal. The FTT was understandably unimpressed: “HMRC are required to give reasons for their decisions, as a matter of public law. It is thus not sufficient for HMRC to say, as they now do, that once they have made an assessment, the burden rests on the Appellant… To use colloquial language, HMRC have made a broad brush decision, and are now asking the Tribunal to assist them in requiring the Appellant to colour in the detail.”

There is (quite clearly) room for HMRC to improve its management of some cases. It is good to see that the FTT will hold HMRC to account.

How are HMRC’s Manuals relevant? 

In my view, it seems possible that the way Zipvit is discussed in HMRC’s Manuals at VIT63100 encouraged HMRC’s initial mistakes in Motorplus. The discussion is still based on the decision of the Court of Appeal which had treated the absence of a VAT invoice as fatal “whether or not the original purchase price was agreed to be inclusive of VAT”. Given the Supreme Court’s decision, it is hard to see on what basis HMRC’s Manual seems to suggest that the Court of Appeal’s views on the invoice issue could still unquestioningly be regarded as good law. 

So, this case should be a prompt to revisit VIT63100. It is also reminder that the Manuals should not be treated as gospel.