The UT4 has dismissed an appeal by a number of local authorities who had sought to be treated as non-taxable persons when providing off-street car parking, and so entitled to recover VAT accounted for on those supplies since 1 January 1978.

This case has a long procedural history, going back to a January 2006 decision of the VAT and Duties Tribunal (as then was), in favour of the local authorities5. This decision was appealed to the High Court by HMRC, and the court made a referral6 to the Court of Justice of the European Union (CJEU). Following the referral, the High Court remitted7 the case back to the FTT. The FTT found8 in favour of HMRC, and it is that decision which was appealed to the UT.


Article 4(5) of the Sixth Directive9 provided that bodies governed by public law, including local government authorities, are not to be regarded as taxable persons in respect of the activities or transactions in which they engage as public authorities, even when payments are collected. The application of Article 4(5) is limited however in circumstances where that treatment would lead to significant distortions of competition where the services being supplied were also supplied by taxable persons.

The ECJ had previously ruled that significant distortions of competition must be evaluated by considering the activity in question, rather than any local market. The phrase “would lead to” includes not only actual competition but also potential competition, where there is a real (rather than hypothetical) possibility of a private operator entering the relevant market. Actual or potential distortions are to be regarded as significant where they are “more than negligible”.

HMRC had argued before the High Court and then the FTT that the answers provided by the ECJ amounted to a presumption of law that differential tax treatment of supplies of off-street parking by local authorities and commercial operators would lead to more than negligible distortions in competition. This argument was rejected by the High Court and by the FTT and was not renewed before the UT.

The FTT’s decision

The FTT considered the question it needed to answer was “whether, in the event that local authority off-street car parking were not taxable, there would be in the United Kingdom as a whole a degree of distortion of competition that could not be dismissed as negligible.” It considered this to be a question of fact.

The FTT observed that section 32(1) Road Traffic Regulation Act 1984 (RTRA) permits local authorities to provide off-street parking. Section 122 RTRA obliges local authorities to secure suitable and adequate parking in certain circumstances.

The FTT found first that local authority charges would find a lower level in circumstances of non‑taxation than of taxation. This would mean fewer commercial car parks would open or remain open, and more local authority car parks would open or remain open.

Secondly, the effect of the different VAT treatment would distort decisions made on outsourcing of off-street parking, tending to favour forms in which the local authority was the provider.

In its view, this amounted to non-negligible distortion of competition and so HMRC succeeded before the FTT. The local authorities appealed to the UT.

Contentions before the UT

The local authorities argued that whilst the finding of the FTT was one of fact, it was nevertheless open to challenge before the UT because it was a finding based on a misunderstanding of the law (pursuant to Edwards v Bairstow10), specifically the legal framework which governs the setting of local authority car parking charges.

Section 55 RTRA provides that, in relation to on-street parking, a local authority must keep a ring-fenced account of income and expenditure, which may be applied only to specific parking, public transport and traffic management purposes.

There is no corresponding provision in respect of off-street parking. The local authorities argued that the FTT erred in finding that local authorities were not precluded from “setting offstreet car parking charges with a view to raising income for other traffic management purposes at least where they are also local traffic authorities.”

The local authorities said that it was not open to them to raise money (ie charge more than sufficient to cover the cost of provision) from off-street car parking. This followed a series of judicial review decisions, Cran11; Djanogly12; and Attfield13, which made clear that RTRA is “not a revenue-raising or taxing statute”. The duty of a local authority is instead to observe the policy considerations spelt out in section 122 RTRA, making the question of whether charges are subject to VAT irrelevant.

Further, the local authorities argued that the FTT’s decision was irrational, being inconsistent with clear witness evidence before the FTT that non-taxation would not have the effect of lower off-street parking prices. Instead the increased revenue would be absorbed into general funds. Broad reductions to parking prices was not generally a priority amongst local authorities. HMRC led no evidence to counter this evidence.

In turn, HMRC argued that there was no foundation to the suggestion that the FTT had misunderstood the legislative framework, or misinterpreted the authorities.

The UT’s decision

Whilst accepting that the RTRA was not a revenue-raising measure, and that the cited public cases were consistent with the local authorities’ arguments on the point, the UT found that the cost to the local authority of meeting its statutory obligation and the revenue generated “must be broadly equal”. However the UT was not persuaded that the FTT had misunderstood the legislative framework. The UT said that the FTT was “very conscious of that framework and was addressing precisely the argument the appellants were making”, and found that the FTT’s analysis of the issue “cannot be faulted”. Accordingly, the appeals were dismissed.


It remains to be seen whether a further appeal will be made by the local authorities. The case is a reminder of the difficulties which are faced by appellants wishing to overturn a finding of fact of the FTT pursuant to Edwards v Bairstow.

Interestingly, the UT was of the view that the issue to be determined by the FTT was not what the local authorities ought to do (ie the position tested in the various judicial review decisions) but what they in fact do, on which basis the UT did not consider the FTT had misunderstood the policy considerations which effect local authority decisions in practice.

To read the UT’s decision click here.