Doubt over £100m VAT challenges after HMRC wins NHS car park battle

The long-running battle between HM Revenue and Customs (HMRC) and the Northumbria Healthcare NHS Foundation Trust was resolved in the revenue organisation’s favour this week, after the Supreme Court unanimously overturned a decision allowing parking charges at the trust to be VAT-free.

The trust had claimed back more than £267,000 in 2017, relating to pay and display parking charges at 14 hospitals across its region, claiming the parking was provided under a ‘special legal regime’. But HMRC had disputed the claim, saying VAT was chargeable on the car parking provision.

Dozens of similar cases had been paused pending the outcome of the Supreme Court ruling, which could represent tens of millions of extra revenue in the wake of the court’s decision.

Bryn Reynolds, a tax expert with Pinsent Masons, said the decision by the Supreme Court represented a comprehensive victory for HMRC.

“In doing so it has significantly tightened the ‘special legal regime’ test holding that a trust’s general public law duties to act in accordance with external guidance, absent good reason, are not sufficient to constitute such a regime,” he said.

“While that point could be open to debate, it also upheld a second ground of appeal. The court considered that the provision of VAT-free car-parking by NHS trusts is both capable of and would distort competition.”

The healthcare provider had previously been unsuccessful at first-tier tax tribunal (FTT) and the upper tribunal, which determined that parking facilities were not provided under a special legal regime and, further, that there would be a distortion of competition.

However, the Court of Appeal ruled last year that parking was provided as part of the trust’s statutory requirements under the 2006 National Health Service Act.

That ruling was set aside by the Supreme Court, though, which agreed with the original FTT ruling that the trust’s car parking facilities were in competition with nearby private car parking and rejected the appeal court decision that VAT would not have “a distortive effect” on local rivals.

The Supreme Court noted that as many as 70 similar appeals by NHS bodies had been stayed behind the Northumbria case, with up to £100 million in contested VAT charges at stake.

Reynolds added the chances of these cases succeeding would now be in doubt based on the latest ruling.

“Taxpayers who have submitted claims on the basis of the Court of Appeal judgement should be considering whether to withdraw those claims or whether they think their situation is sufficiently distinguishable,” he warned

“Given the references to the analysis of the ‘national market’ it seems unlikely they would be.”

Rachel Soundy, a healthcare expert at Pinsent Masons said the ruling opened wider questions over tax rules for the sector ahead of the next Budget.

“This is a noteworthy ruling, especially against the backdrop of growing calls for the government to remove the VAT exemption on private healthcare as a means of securing essential funding for the NHS,” she said.

“While the government has, to date, indicated that it does not intend to impose VAT on private healthcare services, this remains a policy area to watch closely in the upcoming Autumn Budget. “