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VAT and car parking - Local
authorities & NHS trusts - Europe decides
22 August 2008
Background
As set out in our bulletin of 28 April 2008 on this topic,
the UK courts had asked for a ruling from the European Court of
Justice (“ECJ”) on questions relating to whether public bodies such
as local authorities (and possibly extending to NHS Trusts) had
incorrectly been charging VAT on off-street parking. HM Revenue
& Customs (“HMRC”) argued that VAT was payable on these parking
charges. Some local authorities were arguing that it was not. If
the local authorities were successful, this could have led to
substantial claims by them for refunds of VAT, with estimates of
the amount of VAT at stake, at over £120m.
Europe’s views
The ECJ have recently provided their ruling (Case C-288/07; The
Commissioners of Her Majesty’s Revenue & Customs v Isle of
Wight Council and Others), and have essentially sided with HMRC
rather than with the local authorities. While leaving a certain
amount of discretion to the UK government as to how to apply the
VAT rules here, the ECJ’s judgment did clearly state its views on
one of the key questions referred to it.
The VAT legislation underlying these issues on car parking
charges states that public bodies are not obliged to charge VAT on
business supplies of goods or services, if that business activity
is carried out under a statutory regime that is unique to the
public sector - unless to treat them in this way would
significantly distort competition with private sector bodies
carrying on the same activities. In assessing the impact on
competition of public bodies not charging VAT, the UK courts had
asked the ECJ to look at the question, whether:
(a) only the particular market
place in which the relevant local authority operates should be
assessed (the local authorities’ preferred option); or
(b) competition factors on more of
a nationwide basis should be looked at (HMRC’s preferred
option)
The ECJ decided that basing the investigation into competition
factors on a local, case-by-case analysis would not be helpful and
would go against the key principle of fiscal neutrality, which
underpins EU VAT legislation. The ECJ went on further to say that
you had to consider potential competitors (in-so-far as there is a
real possibility of that potential competition) as well as the
actual current market competition, and that the risk of distortions
of competition can be real even if no competitor is at present
operating in that field. This is very much in line with HMRC’s
viewpoint, and goes against the local authorities’ stance. In
wanting to examine a particular local geographical market place,
the local authorities considered that there was potentially less
chance of them being seen as distorting competition in that
locality, by not charging VAT on off-street car parking. But the
ECJ has not agreed with this local approach.
Looking ahead
Following this ECJ ruling, it seems unlikely that the local
authorities will be able to take these claims for VAT refunds any
further, given that HMRC would not have to consider case-by-case
local competition scenarios. This ruling gives more ammunition to
HMRC, on the basis of looking at actual and potential competition
over the whole country. It should assist HMRC in arguing that if
the public sector can avoid charging VAT on off-street parking,
while the private sector has to charge VAT, that would represent a
distortion of competition. So it appears that this round has gone
to HMRC.
For more information or advise, please contact
Ian Long
or Andrew Noble.
The content of this bulletin is provided for
the purposes of general interest and information. It contains only
brief summaries of aspects of the subject matter and does not
provide comprehensive statements of the law. It does not constitute
legal advice and does not provide a substitute for it.