Validity of VAT Invoices and the Right of Deduction: Insights from Tower Bridge GP Ltd v Revenue And Customs [2022] EWCA Civ 998

Introduction

Tower Bridge GP Ltd v Revenue And Customs ([2022] EWCA Civ 998) is a pivotal case adjudicated by the England and Wales Court of Appeal (Civil Division). The core issue revolved around whether a taxable entity, Tower Bridge GP Ltd ("Tower Bridge"), was entitled to deduct input VAT in the absence of a valid VAT invoice. This case underscores the stringent requirements imposed on VAT invoices and the discretionary powers of HM Revenue and Customs (HMRC) in permitting VAT deductions.

Summary of the Judgment

The Court of Appeal upheld the decisions of both the First-tier Tribunal (FTT) and the Upper Tribunal (UT), dismissing Tower Bridge's appeal against HMRC's refusal to allow input VAT deduction. Tower Bridge had purchased carbon credits from Stratex Alliance Limited ("Stratex") through its subsidiary Cantor Fitzgerald Europe Ltd ("CFE"). The invoices issued by Stratex lacked essential VAT details, including the VAT registration number (VRN) and the identification of CFE as the customer. Stratex was not a VAT-registered entity and was involved in VAT fraud. The court held that without a valid VAT invoice compliant with Directive 2006/112/EC (the Principal VAT Directive or "PVD"), Tower Bridge could not exercise its right to deduct input VAT.

Analysis

Precedents Cited

The judgment extensively referenced several key EU and domestic cases to elucidate the requirements for VAT deductions and the validity of invoices:

• Optigen Ltd v Customs & Excise Commissioners - Established that VAT deduction rights are generally unaffected by fraudulent activities of other suppliers unless the claimant knew or should have known.
• Kittel v Belgium - Reinforced that involvement in fraudulent transactions can negate the right to VAT deductions.
• Jorion née Jeunehomme v Belgian State - Highlighted that while member states can impose invoice requirements beyond EU directives for verification, they cannot make such compliance excessively burdensome.
• Reisdorf v Finanzamt Köln-West - Emphasized that holding a compliant original invoice is mandatory for VAT deductions.
• Albert Collée v Finanzamt Limburg an der Lahn - Asserted that concrete evidence of VAT payment is crucial, and formalities not directly stipulated by directives cannot impede VAT deductions.
• Polski Trawertyn v Dyrektor Izby Skarbowej w Poznaniu - Stated that formal obligations beyond the directive’s requirements could not be used to unfairly deny VAT deductions.
• Senatex GmbH v Finanzamt Hannover-Nord - Confirmed that corrected invoices are essential for VAT deduction rights.
• Vădan v Agenţia Naţională de Administrare Fiscală - Clearly denied VAT deductions without a compliant invoice, reinforcing the necessity of adhering to formal requirements.

Legal Reasoning

The court’s legal reasoning was grounded in the interpretation of the Principal VAT Directive (PVD) and its transposition into domestic law via the Value Added Tax Act 1994 (VATA) and VAT Regulations 1995 (VATR). The key points of legal reasoning include:

• Requirement of a Valid VAT Invoice: For a taxable person to exercise the right to deduct input VAT, they must hold an invoice compliant with articles 220 to 236, and particularly article 226 of the PVD. The judgment emphasized that essential details such as the supplier's VAT registration number (VRN), the identification of the customer, and the VAT amount must be present.
• Discretion of HMRC: While HMRC possesses discretionary powers to accept alternative documentary evidence under regulation 29 of the VATR, this discretion is not absolute. It is primarily aimed at allowing corrections for minor invoice defects but does not extend to cases where fundamental invoice requirements are unmet.
• Substantive vs. Formal Conditions: The court distinguished between substantive conditions (e.g., being a taxable person, conducting taxable transactions) and formal conditions (e.g., invoice compliance). However, it held that failure to meet formal conditions as stipulated by the PVD cannot undermine the right to deduct if substantive conditions are fulfilled.
• Impact of Fraudulent Suppliers: Transactions with suppliers involved in VAT fraud cannot be used to claim input VAT deductions, especially when invoices are suspect or invalid.
• EU Case Law Consistency: The judgment aligns with established EU case law, reinforcing that compliance with the formal requirements of the PVD is non-negotiable for VAT deductions.

Impact

This judgment has significant implications for the application and enforcement of VAT deductions in the UK, especially post-Brexit. The key impacts include:

• Strengthened Audit Controls: Tax authorities are empowered to strictly enforce VAT invoice compliance, thereby reducing avenues for VAT fraud.
• Clarification of Discretionary Powers: The ruling delineates the boundaries of HMRC’s discretion under regulation 29 of the VATR, ensuring that formal compliance cannot be manipulated to unjustly deny VAT deductions.
• Guidance for Taxpayers: Taxable persons must ensure that all VAT invoices are meticulously compliant with directive requirements to safeguard their rights to input VAT deductions.
• Consistency with EU Law: Despite Brexit, the judgment maintains alignment with prior EU jurisprudence on VAT matters, ensuring continuity in VAT regulatory standards.

Complex Concepts Simplified

Conclusion

The Tower Bridge GP Ltd v Revenue And Customs judgment serves as a critical reminder of the paramount importance of adhering to VAT invoice requirements. It underscores that while HMRC possesses discretionary powers to allow VAT deductions in certain scenarios, these powers are bounded by strict compliance with formal requirements as delineated by the PVD. Businesses must ensure meticulous compliance with VAT invoicing standards to safeguard their rights to input VAT deductions. Furthermore, this case reinforces the integrity of the VAT system by empowering tax authorities to effectively combat VAT fraud through rigorous invoice verification.