Should income from hospital parking be subject to VAT?
Jan Garioch CA discusses the First Tier Tribunal’s recent decision in an important case on whether VAT is due on car parking income of an NHS Trust.
The First Tier Tribunal (FTT) have released a decision on Northumbria Healthcare NHS Foundation Trust (the Trust) v HMRC. The Trust argued that it should not have accounted for £267,000 of VAT on the income it makes from its supplies of car parking. This is an important case because a large number of similar appeals are stayed behind it.
The background
The trust provides healthcare to a rural population with limited access to public transport. Approximately 80% of people attending the Trust’s hospital sites do so by car, and the Trust provides car parking facilities at all of its sites for staff, patients and visitors. The Trust stated availability of alternative parking which is close enough to the hospitals to be of use is very limited. It claimed that due to their location, most of the Trust’s parking sites are not useful for parking unconnected with the hospitals. However, one site was used for unofficial airport parking leading to an adjustment of charges to deter that use.
Grounds of appeal
Three grounds of appeal were advanced by the Trust. Firstly, the supply of car parking services by the Trust does not constitute an economic activity. If that failed, the Trust should not be regarded as a taxable person with regard to car parking. Finally, the Trust argued that the supply of car parking is closely related to supplies of exempt medical care.
The FTT’s deliberations on economic activity
Starting with the economic activity question, the Trust argued that it was not participating in any market. However, the FTT found that NHS Trusts receive guidance which allows them to charge for car parking. They can raise income as long as that does not interfere with the provision of NHS core services and as long as a profit is made and used to improve health services. The guidance specifically flags that car parking on NHS sites is in competition with alternative car parking facilities, and the FTT found clear evidence in this case that there was actual competition. Therefore, the Trust supplies car parking as an economic activity.
Acting as a taxable person or not?
The Trust claimed it acted as a public authority and not a taxable person when providing car parking, but it did not convince the FTT of that. The Trust has no public powers to authorise or restrict parking on the public highway. Although it had to consider NHS guidance on issues like wider area travel plans and affordability of charges, that guidance was not a special legal regime.
Furthermore, it is private law, not public law, which governs the Trust’s supply of car parking on its own land. Since car parking is not specifically listed in the Principal VAT Directive (PVD) as one of the activities regarded as performed in the course of business when done by a public body, it fell to HMRC to prove it would lead to a significant distortion of competition to treat the Trust as a non-taxable person with regard to car parking. The FTT was readily convinced that there would be a clear undercutting of commercial car park operators if the Trust did not have to charge VAT. This was the case regardless of whether the saving went to customers at cheaper prices or was retained, thus generating higher profits than competitors could.
Does a close link to medical care allow exemption?
The final ground to consider was whether the Trust could exempt its supply of car parking because of its healthcare role. The Trust was able to convince the FTT that Item 4 of Group7 (which only exempts goods supplied in connection with medical care and not services) does not correctly implement the PVD.
Therefore, the FTT had to apply a conforming construction and admit the possibility that a service could qualify for exemption. However, the Trust lost the argument that parking at each of its sites is imperative to the successful delivery of healthcare. The FTT concluded that the supply of car parking was similar to the hiring of television sets to in-patients, since it raised additional income for the Trust but was not essential for medical care. The Trust’s appeal was dismissed.