The UK Court of Appeal allows repayment of VAT paid by NHS trust on provision of car parking at hospital sites

The NHS trust accounted for VAT on charges for car parking facilities at hospitals, but later made a claim for the repayment of the output tax that it claimed to have wrongly accounted for. This was on the basis that it was acting as a public authority in providing car park facility, i.e. not as a VAT taxable person for the transactions in question.

HMRC accepted that the NHS trust was a body governed by public law but stated that VAT should be chargeable as i.) It was not acting as a public authority and ii.) even if it were, there would otherwise have been significant distortion of competition. The NHS trust’s appeals against HMRC at First-tier Tribunal and Upper Tribunal failed.

The Court of Appeal held that the test to determine whether NHS trust was acting as a public authority was whether the activities were engaged under a special legal regime or under the same legal conditions as private operators. In this case, the Court of Appeals considered that this test was met based on the guidance issued by the Department of Health read with 2015 Parking Principles because the legal conditions under which the NHS trust offered car parking differed in material respects from that applicable to private operators.

Accordingly, the NHS trust was held to provide hospital car parking under a special legal regime. Moreover, the Court of Appeal affirmed that none of the evidence in the instant case supported a conclusion that non-taxation gave rise to distortions in competition. HMRC had offered very little actual evidence of significant distortion of competition, relying instead on presumptions, but the Court of Appeal affirmed that an assessment of the economic circumstances giving rise to a distortion of competition was required, and the onus was on HMRC.

Therefore, the NHS trust’s claim for repayment of VAT was allowed.

key takeaway

This is an important decision because it impacts 50 similar appeals by other NHS bodies with about GBP70mio VAT at stake which were stayed behind this decision.

This is also important for other public authorities and bodies, because this decision clarifies the test for determining whether the activities of a public authority are engaged under a special legal regime for the purposes of qualifying for VAT relief and that distortion of competition needs to be evidenced.

Reference: Northumbria Healthcare NHS Foundation Trust v HMRC