HMRC recently issued a Revenue and Customs Brief explaining their change in policy on the VAT treatment of excess charges for car-parking.
Previously, HMRC considered that in non-local authority car parks (including NHS operated car-parks), excess parking charges were additional consideration for a supply of parking and therefore subject to VAT. However, they have now reconsidered their position and state in the Brief that:
…where a car park operator makes an offer of parking under clear terms and conditions, setting punitive fines for their breach, the fines constitute penalties for breaching the contract, rather than additional consideration for using the facilities.
The result of this is that many excess car parking charges will be treated as outside the scope of VAT for all car-parking operators including NHS organisations.
Excess Charges Not Subject to VAT
The penalty charges that will no longer be subject to VAT are those that are levied where a driver is in breach of the terms of the contract. The commonest situations where a driver may be in breach of the contract are:
- no parking ticket on display
- overstaying purchased parking time
- returning within a specified time
- parking outside marked bays
- parking in bays set aside for disabled drivers or parents with children
Excess Charges Subject to VAT
Where the terms and conditions make it clear that the driver can continue to use the facilities after a set period upon payment of a further amount without being in breach of the contract – for example, no charge for an initial three hours parking but £40 if that period is exceeded – then the payment will be consideration for use of the facilities and subject to VAT.
From now on, income from car-parking should be split in order to identify the non-taxable excess charges and VAT should only be declared on the taxable charges. If Trusts have accounted for VAT on excess car-parking charges in the past, (which is likely), it will be possible to make a claim for the overpaid tax, subject to the three-year cap. There may also be scope to submit a further claim for overpaid VAT under the ‘Fleming’ rules, i.e. relating to car-parking income up to 1997.