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<b>VAT News:</b> HMRC to appeal local authority car parking case. By Nichola Ross Martin

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28th Mar 2006
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HM Revenue and Customs says it will appeal against the recent tribunal decision regarding VAT on local authority car parking and will consider making repayments to the four local authorities involved in the appeal, subject to the "unjust enrichment rules".

The VAT and Duties Tribunal previously ruled that the Isle of Wight Council and three other local authorities do not have to charge VAT on car parking in their areas.

The Tribunal said that the non-taxation of local authority off-street car parks does not significantly distort competition in the appellants' geographical areas. It concluded that distortion of the market by public authorities is generally inherent, because Article 4(5) provides that they do not have to charge VAT even though other providers of the same service might have to charge VAT. Consequently, taxation on the grounds of significant distortions of competition should be applied only in the most exceptional of circumstances. Additionally, it found that, in the case of car parking, competition must be looked at in the circumstances prevailing in individual local authorities and not on a nationwide basis.

HMRC believes that the Tribunal has not taken full account of the EU case law that relates to the application of Article 4(5), including the principle of fiscal neutrality, which was argued at the hearing. Consequently, HMRC does not agree with this decision of the Tribunal and an appeal will accordingly be lodged with the High Court.

In Business Brief 04/06 HMRC says "It would be inappropriate for other local authorities to claim refunds of output tax declared on off-street parking simply on the basis of this decision, and any such claim will not be accepted. They should continue to account for VAT based on HMRC's view of the law. Where appropriate, HMRC will continue to make protective assessments or to disallow protective claims received. Should a higher court subsequently rule that HMRC's original decision was correct, we would seek repayment of any amounts previously paid. Interest and penalties will also be sought as appropriate. There is more information about this in section 8 of VAT Notice 700/45 and in Business Brief 28/04."

It is understood that there is a queue of local authorities with possible refund claims amounting to many millions of pounds. They will now have to wait even longer as HMRC seems keen to fight this one to the bitter end.

VAT and medical care
HMRC's Business Brief 04/06 also adds that there will be no immediate change to the application of the VAT exemption for medical care on 1 April 2006 following the recent consultation exercise.
Doctors and other health professionals should continue to follow the advice laid down in Business Brief 29/03. A further announcement on implementation will be made later this year. HMRC will be publishing a full summary of responses to the consultation in due course.

Nichola Ross Martin

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