Whether person taxable – public authority required to charge VAT on car parking

The Upper Tribunal (UT) has held that an NHS trust that provided car parking services (the Trust) was acting as a taxable person and was therefore required to charge VAT on those car parking services.

The Trust's principal purpose was to provide goods and services for the purposes of the health service in England. It was a public authority for the purposes of section 41A, Value Added Tax Act 1994 (VATA). The Trust was also permitted under its constitution to carry on activities for the purpose of generating additional income in order to better carry on its principal purpose. Section 41A, VATA, applies to supplies made "in the course of activities or transactions in which … [a public authority] is engaged as a public authority". It sets out a list of supplies by public authorities that are automatically subject to VAT (none of which was in issue), and also provides that if a supply made by a public authority "is not in respect of … an activity [set out in the list], it is to be treated for the purposes of this Act as a supply in the course or furtherance of a business if (and only if) not charging VAT on the supply would lead to a significant distortion of competition".

The Trust had appealed to the First-tier Tribunal (FTT) on the following three grounds:

(1) that it should not be regarded as a taxable person pursuant to section 41A ,VATA (and article 13(1) Principal VAT Directive (PVD)), in relation to the supply of parking services;

(2) that if it was a taxable person, then its supply of car parking was closely related to the supply of hospital and medical care and therefore exempt under Article 132(1)(b), PVD and Item 4, Group 7, Schedule 9, VATA; and

(3) that its supply of car parking services did not constitute an economic activity and therefore was outside the scope of VAT.

The FTT dismissed the Trust's appeal on all grounds and only the first ground was pursued on appeal to the UT.

The UT noted that in order to determine whether the Trust was supplying car parking services in its capacity "as a public authority", it was necessary to determine whether the activity was carried out under a "special legal regime". In the view of the UT, it was necessary to ask whether the pursuit of the activity involved the use of public powers, or whether it was "closely linked to the exercise of rights and powers of public authority". It was not enough for a body governed by public law simply to be acting in accordance with powers given to it by statute. The UT held that the Trust was not acting in accordance with a special legal regime. The UT further held that even though, on the evidence, car parking prices would not necessarily reduce if VAT were not charged, there would still be a distortion of competition sufficient to engage section 41A(3), VATA (i.e. for the supplies to be treated as supplies in the course of a business). In the view of the UT, the question to be asked was "whether the different treatment of the activity for VAT purposes would lead to a significant distortion of competition, including a distortion of potential competition provided that there is a real and not hypothetical possibility of market entry by a private operator" and where two similar supplies meeting the same needs were treated differently for the purposes of VAT there would generally be a distortion of competition.


The UT therefore agreed with the FTT and dismissed the appeal.

Why it matters: This decision provides useful commentary on the question of whether there has been a distortion of competition which is key to achieving the fiscal neutrality that is a hallmark of the VAT system. The decision can be viewed here.