In his latest monthly column for Tax Journal, Victor Cramer notes that the decision in Glanbia’s tax tribunal claim has wider implications beyond VAT on flapjacks.

On its face Glanbia Milk Ltd v HMRC [2022] UKFTT 108 (TC) (reported in Tax Journal, 27 April 2022) is a clichéd case about VAT and cakes. But beware the chewy goodness, the raisins are traps.

Details of the claim

First, the clichéd bit. The FTT wasted no time in giving the clearest of answers on the liability issue. Flapjacks are cakes except when they are not. The 36 varieties considered in the case were not, largely because they suited the modern world. Any appeal may hold some interest on the evolution of language and the impact of HMRC guidance.

In this case, GNUK manufactured flapjacks and sold them to GNIL. GNIL sold some to third-party customers, and supplied some back to GNUK. GNUK then sold these second-hand flapjacks to other third-party customers. All parties treated the supplies as zero-rated.

HMRC raised assessments in respect of sales by GNUK to GNIL and GNUK to third parties. It did not assess the sales from GNIL to GNUK. The assessments treated GNUK’s price as VAT inclusive.

GNUK’s view was that the same logic should apply to the supply by GNIL. GNUK had paid a VAT inclusive price and should have been able to deduct input VAT. Any assessment should reflect the correct net position. The taxpayer relied on the principles set out by the CJEU in the cases of Tulică and Plavoşin (C-249/12 and C-250/12). HMRC objected.

The issue turned on the interaction between Tulică and Zipvit Ltd v HMRC (Case C-156/20). The FTT relied heavily on the earlier Court of Appeal decision in Zipvit [2018] EWCA Civ 1515). It referred to para 116 of that decision and concluded that the taxpayer ‘would first have to show that the tax in question had been paid … by producing a fully compliant VAT invoice showing the correct amount of VAT paid in relation to those supplies’. It concluded that the lack of a valid VAT invoice was fatal.

Different cases, different facts

Does Zipvit (as decided by the Court of Appeal or the CJEU) apply that broadly or is it bordered by its facts? It was an unusual case. The taxpayer sought a windfall by arguing that a contractually VAT exclusive price should retrospectively be treated as VAT inclusive. The contractual position drove the Court of Appeal’s conclusion that the amounts paid by Zipvit were explicitly VAT exclusive. Combined with the CJEU decision, it is clear that Zipvit had borne no VAT burden, and had no right to input VAT deduction.

Glanbia is factually different. Invoices were assumed to be VAT inclusive. Glanbia argued that the price charged to them should also be treated as including an amount of VAT, which they should be entitled to deduct.

In principle, Glanbia’s position is neither unreasonable nor novel. It was not stretching the rules to generate a windfall; it was seeking to apply the full consequences of a mistake to apply a set-off. By analogy, see VATA 1994 s 81(3), (3A) and Birmingham Hippodrome v HMRC [2014] EWCA Civ 684. What’s sauce for the goose is sauce for the gander.

Conclusions

Where does this leave us? Arguably, Glanbia takes Zipvit too far and is open to challenge. Hopefully the taxpayer will take the point, because the wider repercussions are significant. Zipvit could eliminate HMRC’s discretion under reg 29 of the 1995 VAT regulations to entertain alternative evidence for input VAT deduction.

Alternative evidence has always been a last resort. In the future, it may not even be that.

On the bright side, the case offers a Brexit bonus. The Court of Appeal’s decision in Zipvit seems to conclude that reg 29 is too generous an interpretation of article 226 of the VAT Directive. Post-Brexit, so what?

The article in the Tax Journal can be found here.

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