The First Tier Tax Tribunal (‘FTTT’) has recently held that where a customer over-pays for parking, the excess amount paid is to be treated as an ex-gratia payment, not subject to VAT. This offers the opportunity for NHS Trusts to make a protective VAT reclaim where they have accounted for output VAT on over-payments received for parking charges.


The FTTT allowed an appeal brought by the Borough Council of Kings Lynn and West Norfolk (‘the Council’) against a refusal of their VAT reclaim by HMRC. The Council operates pay-and-display car parks where customers pay in advance at ticket-dispensing machines. These machines accept coins only and no change is given, but over-payments are accepted. Daily parking is available for periods between 8.00 a.m. and 6.00 p.m. and costs £1.40 for 1 hour, £2.10 for 3 hours and £4.10 for 5 hours.

The Council had previously accounted for output VAT on all its takings from these car parks, but argued that where a customer had over-paid for parking, no output VAT should be due on the over-paid amount. It contended that this over-paid cash was a form of ex-gratia payment, as customers without exact change could choose to make an over-payment for a parking ticket, but would receive nothing extra in return. Where, for example, a customer paid £2.00 for 1 hour of parking costing £1.40, the customer would still only obtain the right to park for 1 hour.

The FTTT agreed with the Council, holding that for a sum of money to be taxable consideration, there must be a link between what is supplied and what is paid for. Customers could not change the amount of consideration for a parking ticket by paying more or less than the specified tariff, and it was only this tariff price which was taxable for VAT.

HMRC has yet to indicate whether it will appeal.

Relevance to the NHS

NHS Trusts which have received over-payments on car parking charges should now consider making a protective claim to HMRC for any output VAT they have declared on these amounts, in any periods within the last 4 years.

We would be pleased to assist with the preparation and submission of a protective claim, which we offer as part of our business activity/accounts receivable review process. Any protective claim will need to be supported by evidence of over-payments, which we can calculate using your records of tickets issued to car park customers and cash income received.

For further information about the case, and to discuss this opportunity for claiming refunds of over-paid VAT, please do not hesitate to contact us.