A tax tribunal has rejected an appeal for a VAT refund by a Sheffield car-park operator and wheel-clamping business.
The case (Vehicle Control Services Ltd v the commissioners for HMRC, TC05196), centred on a disagreement over whether VCS’s income from parking charge notices and charges for wheel clamping and towing away care, was subject to VAT and whether Vehicle Control Services (VCS) was entitled to reclaim VAT of nearly £80,000.
VCA, which won an appeal in the Court of Appeal in 2013, argued that although parking penalties, or “parking charge notices” (PCNs), are outside the scope of VAT, it did not make any purchases or incur any expenses relating to VAT. PCS argued that the PCN’s were “a by-product” of its taxable business.
“If all motorists comply with the regulations, we do not receive any income which is outside the scope of VAT but our purchases and expenses remain unchanged.”
HMRC argued that input VAT on costs, which cannot be directly attributed in their entirety to specific taxable supplies, should be apportioned between costs relating to activities which are not within the scope of VAT and costs relating to taxable supplies.
The first-tier tribunal concluded that 92% of VCS’s income from fines on motorists was outside VAT.
In making its decision it analysed the wording of the 1994 VAT act “because the goods and services they incur 10 are used “for the purposes of any business carried on” by them and the VAT thereon is input tax.
Law on VAT reclaims is complicated by a difference between the 1994 Act and European Law.
European Law (Article 168 of the Principal VAT Directive of 2006) indicates that the right to deduct relates only to goods or services used for the purposes of taxed transactions of a taxable person, the tribunal noted.
Another part of the directive (Article 173) says that only the proportion of VAT attributable to taxable supplies (and non-relevant supplies covered in Article 169 and 170) are recoverable.
However, a tax case in 1999 between the ICAEW and HMRC (UKHL 19) ruled that UK rules have to be interpreted to be consistent with the Directive as far as possible.
*29 June 2016: This article was amended to correct 'Principle' to 'Principal' in the ninth paragraph*