On appeal from [2018] EWCA Civ 1515

This is the second judgment given by the Supreme Court in this case. In the first judgment ([2020] UKSC 15), the Court set out the background to the dispute and made a reference to the Court of Justice of the European Union, upon which judgment was delivered on the 13th of January 2022. The Supreme Court could then determine this appeal without the need for any further hearing.

The Appellant is a business which used a specialised bespoke service offered by Royal Mail. Royal Mail should have charged VAT in relation to the service. However, at the time it was mistakenly believed by all concerned, including the Respondent, that this service was exempt from VAT under European law.

In 2009, however, the Court of Justice of the European Union (“CJEU”) held in R (TNT Post UK Ltd) v Revenue and Customs Commissioners (“TNT”) that the VAT exemption for postal services under the Principal VAT Directive (“the Directive”) applied only to supplies made by a public postal service like Royal Mail when acting as such, and not to supplies of services for which the terms had been individually negotiated. As a result, the services supplied to the Appellant should have been standard rated for VAT purposes.

Where VAT is charged, it is possible for the person charged to reclaim it as input VAT in relation to any supply of goods or services it provides to others on which VAT is chargeable. Although the Appellant had not been charged VAT by Royal Mail, it relied on the judgment in TNT to argue that the sums it paid Royal Mail as the contract price for its service should be treated as if they did include an element of VAT. On the basis of this contention the Appellant made two claims against the Respondent for repayment of input VAT for a total sum of £415,746 plus interest in respect of the services it had purchased from Royal Mail. The Respondent rejected these claims, maintaining that since the Appellant had not in fact paid VAT it should not now be able to claim a tax rebate based on an alleged notional payment of VAT.

The reference to the CJEU dealt with two issues in particular: (1) whether the Appellant was entitled under Article 168(a) of the Directive to deduct as input VAT part of the sum that it had paid to Royal Mail, on the basis that VAT had been “due or paid” within the meaning of the Article because the sum charged by Royal Mail must be treated as containing a notional element of VAT (“the due or paid issue”); and (2) if the Appellant did in principle have a right to deduct under Article 168(a), whether there is an additional condition to be fulfilled before it could make a claim for a deduction, namely that it holds VAT invoices evidencing its claim to have actually paid input VAT (“the invoice issue”).

In addition to those issues of European law, the Appellant also maintained that the Respondent had a discretion under domestic law pursuant to regulation 29(2) of the Value Added Tax Regulations 1995 (“regulation 29(2)”) to accept other evidence of payment of VAT, even if not recorded in an invoice, and to repay the notional element of tax, which it should have exercised in the Appellant’s favour (“the discretion issue”).

These proceedings are a test case in respect of supplies of services by Royal Mail where the same mistake regarding VAT exemption was made. The total value of claims against the Respondent is estimated at between £500m and £1 billion.


HELD- The Supreme Court unanimously dismissed the appeal.


Issue 1: The due or paid issue

The CJEU concluded on the first issue that the Appellant could not claim to deduct an amount of VAT for which it had not been charged and which as a result had not been charged to the consumer. As a result, VAT had not been “paid” within the meaning of Article 168(a) of the Directive.

The CJEU also found that VAT could not be regarded as being “due” within the meaning of Article 168(a), since no request for payment of VAT had been sent to the Appellant by Royal Mail.


Issue 2: The invoice issue

In view of its definitive ruling on the first issue, the CJEU did not find it necessary to answer the question referred to it in relation to the invoice issue. As the claim must fail due to the Appellant having no entitlement under Article 168(a), it was not necessary or appropriate for the Supreme Court to determine the second issue.


Issue 3: The discretion issue

The First Tier Tribunal found that the Respondent had not considered whether to exercise its discretion under regulation 29(2) to accept alternative evidence of payment of VAT in place of a tax invoice and to repay tax. However, the Tribunal found that had the Respondent considered whether to exercise this discretion, they would inevitably and rightly have decided not to accept the Appellant’s claim. The Supreme Court agrees, finding that there was no sound basis on which it would have been appropriate to use public monies to make a payment to the Appellant in the circumstances of this case.


For the judgment, please see below:

Watch Judgment summary
11 May 2022 Judgment summary