VAT News

Update in the Isle of Wight Off Street Car Parking Case


It is now over 10 years since litigation started on the VAT liability of off street parking by local authorities and the latest decision in this long running case led by the Isle of Wight was released just before Christmas. 

In this latest stage of the litigation process the Court of Appeal considered whether there was anything wrong with the First Tier Tribunal’s (FTT) and Upper Tier Tribunal’s (UTT) decision that the non-taxation of off-street car parking by local authorities would distort competition, that such distortion would be more than negligible and that those conclusions should not be disturbed on appeal.  As part of the original appeals the burden was on HMRC to establish that non taxation of off street car parking would cause distortions of competition.

In this appeal the appellants submitted that there was a fundamental misunderstanding of the legal framework governing local authority off-street car parking.  This misunderstanding covers the fact that:

  • Firstly, off street car parking charges and expenditure are paid into and taken from the local authority’s general fund which is established under the Local Government Finance Act 1988.
  • Secondly, the pricing of off street car parking is decided by various policy considerations related to the policy objectives of the Road Traffic Regulation Act 1984.

The argument by the appellants was that if the FTT and UTT had taken these points into account they would not have been bound to conclude that HMRC cannot discharge the burden on them of showing that in the hypothetical national market for off street car parking (where local authorities would not pay VAT), the absence of VAT would have a causal connection with a distortion of competition or a significant distortion.

In reaching their decision the Court of Appeal dismissed the appellant’s arguments and confirmed that at the heart of the FTT’s decision was the conclusion that in a hypothetical world where VAT had never been charged on off street parking the charges would have been lower.  In meeting this conclusion, the FTT had considered two main points:

  1. When fixing the level of charges, local authorities will have a need to meet costs
  2. If VAT was not paid on off street car parking local authorities would have been able to and would have wanted to keep charges lower to boost the local economy by attracting shoppers with cars while maintaining the same spending priorities and allocation of the general fund.

The Court of Appeal held that it was impossible to say that the FTT’s conclusions were plainly wrong or outside the bounds within which reasonable disagreement was possible and therefore they should not be disturbed on appeal. It remains to be seen whether the litigation will continue.

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