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image of toy cars | accountingweb | NHS Trust succeeds in VAT car parking case
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No room for HMRC to manoeuvre in NHS parking case

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An NHS Trust succeeded in a case concerning VAT on hospital parking because the court of appeal decided that it was provided by the trust as a public authority.

18th Mar 2024
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VAT on hospital parking charges is a subject capable of eliciting strong views, to put it mildly. Some might therefore consider it good news that in Northumbria Healthcare NHS Foundation Trust vs Revenue and Customs Commissioners [2024] EWCA Civ 177, the court of appeal (CoA) held that no VAT was chargeable by the taxpayer NHS trust because it provided parking services as a public authority.

The multi-storey so far

Sections 41A(1) and 41A(3) of the VAT Act 1994, as in force at the time, implemented article 13 of the principal VAT directive (PVD). Those sections together provided that a supply made by a public authority when carrying out activities or transactions in which it was “engaged as a public authority” would only be subject to VAT if not charging VAT would lead to “significant distortion of competition”.

In May 2017, the trust, which had previously been charging VAT on parking charges, claimed a repayment of output VAT from HMRC on charges made to customers between 2013 and 2016, principally on the basis that it was acting as a public authority in providing parking facilities and was therefore not conducting an economic activity subject to VAT.

The first tier tribunal (FTT) dismissed the trust’s appeal. It held that the trust was not “engaged as a public authority” when providing parking facilities and that, even if it was, there would be significant distortion of competition if it did not charge VAT.

The upper tribunal (UT) upheld the FTT’s decision on the basis that the FTT had not made any error in relation to either the “engaged as a public authority” or “distortion of competition” questions. The trust appealed to the CoA.

Staying within the (guide)lines

The CoA held that s 41A VATA 1994 applied to the activities of a public authority if they were conducted under a “special legal regime” and not under the “same legal conditions” as private traders carrying out the same activity. It found that the FTT and UT had applied the wrong test by asking instead whether the parking activities were “closely linked to the exercise of rights and powers of public authority”.

The CoA held that the trust was acting under a “special legal regime” and was therefore “engaged as a public authority” when providing parking facilities. The trust was required to follow public guidance when providing parking facilities unless there was a good reason to depart from it. The guidance in question was issued by the Department of Health and was entitled “NHS patient, visitor and staff car parking principles”. No doubt this is a real page turner.

The CoA dismissed HMRC’s argument that the guidance only set out what the trust “should” do, and “should” was insufficiently mandatory to create a special legal regime. If the trust failed to follow the guidance without a good reason, some visitors, like relatives of seriously ill patients, could in theory bring judicial review proceedings against the trust. In the CoA’s view, that had a real effect on how the trust provided parking facilities.

A competitive edge?

The CoA considered that the FTT had been wrong to find that there was significant distortion of competition. It was common ground that it was for HMRC to prove any distortion. The CoA noted the FTT’s findings that there was a market for parking and that the trust competed with private operators in that market. However, that was not enough for HMRC to succeed.

The CoA also considered it was clear from previous case law that the FTT had been required to assess the economic circumstances and then consider whether the trust not charging VAT would lead to more than negligible distortion of competition. The FTT had gone wrong by not carrying out that exercise.

The CoA also dismissed HMRC’s argument that there was a breach of fiscal neutrality that necessarily led to distortion of competition. The CoA held that article 13 of the PVD envisaged some interference with fiscal neutrality. In any event, the CoA doubted whether a typical consumer would consider the trust’s parking facilities identical to those provided by a private operator.

Ticket or leave it

The CoA decided to remake the FTT’s decision. It concluded that the trust was engaged as a public authority in providing parking facilities and that this did not give rise to significant distortion of competition.

In this author’s view, the amounts potentially at stake for other NHS trusts and the significance of the points of law raised mean that HMRC can’t be expected to just accept it. An appeal to the Supreme Court looks likely.

It remains to be seen whether the decision will make hospital parking cheaper as it will be for trusts to decide whether to pass any VAT saving on to visitors.

Replies (4)

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By vstrad
20th Mar 2024 10:01

Phew! My wife kept telling me to throw away my collection of hospital pay-and-display tickets from 2013 but now I'll be able to claim the VAT back from the hospital. They will be refunding punters, won't they ...

Thanks (1)
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By [email protected]
20th Mar 2024 14:21

Accepting that HMRC have an obligation to enforce the law I am curious as to what the public interest in this cases is.
The NHS trust is a public body: take the VAT off the NHS trust leaving them worse off, pass the VAT to The Treasury who then have to give it back to the hospital to fund medical care...
Masses of admin, no change in the underlying economics except all parties paying serious legal fees.
"It all makes work for the working man to do"

Thanks (1)
Replying to [email protected]:
Pile of Stones
By Beach Accountancy
20th Mar 2024 18:05

T'was on a Monday morning the tax man came to call...

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Replying to Beach Accountancy:
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By [email protected]
20th Mar 2024 21:41

Indeed, but in Michael Flanders' day they were honest tradesmen.
Nowadays they all seem to be apparachiks.
Today's jolly, tax return filed early November and receipted. Colleague gossiping with client who just mentioned no sign of anticipated repayment. Visit to agent portal, return noted as received but account not updated; ear scratching followed by phone call... Ah, return rejected for processing and passed for manual processing, why? No idea, scheduled for manual process in June! Seven months for a simple process!
This is now, not a difficult return, think of MTD and shudder...

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