NHS parking charges should be free of VAT, Court of Appeal rules

Bryn Reynolds and Ian Robotham of Pinsent Masons were commenting after the Court of Appeal found that charges made by NHS trusts for car parking were levied under a “special legal regime” and that HM Revenue and Customs (HMRC) had not made the case that non-taxation would create a significant distortion in competition. Consequently, the court ruled that the charges should be treated as outside the scope of VAT.

The ruling, which arose in the context of a dispute between Northumbria Healthcare NHS Foundation Trust and HMRC, is the potential precursor to similar claims, with around 50 appeals already in the pipeline where there is approximately £70 million of VAT at stake.

VAT expert Bryn Reynolds said: “This decision will likely trigger a raft of claims from other NHS trusts. With approximately 229 NHS trusts of various descriptions compared to the 50 cases, there are likely to be many that have not submitted claims. Of particular interest is the court’s commentary that the decision does not necessarily apply to NHS trusts that have outsourced their car-parking to a third-party operator. Determining whether to submit a claim under this alternative fact pattern will require careful consideration and review of the contractual arrangements. The nature of any agency arrangements will be key.”

Northumbria Healthcare had been unsuccessful at both the first-tier tax tribunal (FTT) and in the upper tribunal. Both tribunals determined that the Trust did not provide the car parking under a special legal regime and, further, that there would be a distortion of competition.

By contrast, the Court of Appeal considered that the parking was provided under the Trust’s statutory requirements under the 2006 National Health Service Act – specifically under sections two (General power) and 43 (Provision of goods and services). A particular point the court examined was whether the provision of the car parking services fell under paragraph 3 of Section 43. This paragraph refers to “other activities” undertaken for the purpose of making additional income.

The Court of Appeal distinguished in this instance between the provision of parking, which may generate income but fundamentally is to facilitate access to the relevant facility, and, for instance, a gift shop. The gift shop has no link to the better provision of the underlying healthcare service, but a parking facility does.

The Trust relied upon the Board of Health-issued “2015 Parking Principles” as further providing a specific legal regime which was legally binding on the Trust. HMRC considered that the 2015 Parking Principles were “bare directory guidance” and too “soft” a basis to establish a special legal regime. However, the Court of Appeal found that the Trust was legally bound to follow this guidance, absent exceptional circumstances, and consequently that it was capable of creating a special legal regime which governed its provision of parking.

Having concluded on this point, the Court of Appeal considered whether non-taxation of NHS parking would create a distortion of competition. Whilst the FTT had made findings of fact that Northumbria Healthcare both participated in the car parking market, and further that there was actual competition between its car parks and parking provided by private operators, the Court of Appeal determined that this was insufficient to evidence a distortion of competition. Without an assessment of the economic circumstances, the Court of Appeal considered that HMRC’s case on this point could not be made out. This was particularly the case given that the 2015 Parking Principles were clearly not focused at competing with other local parking providers.

Tax expert Ian Robotham said: “Given HMRC’s prior success and the sums involved, we would expect HMRC to appeal this decision to the Supreme Court. Whilst the decision is a loss for HMRC, the Court of Appeal has provided clear guidance to HMRC in its concluding paragraphs about the nature of the economic assessment it expects to be undertaken and the relevant factors it expects to be considered. If HMRC is able to provide this evidence, the decision of the Supreme Court may be very different. In the interim, other NHS trusts need to be considering how best to protect their position where VAT return periods are going out of time.”