BRIDGEND COUNTY BOROUGH
8 AUGUST 2006
REPORT OF THE ASSISTANT DIRECTOR - FINANCE
ISLE OF WIGHT (ET AL) CAR PARKING INCOME TRIBUNAL CASE
(JANUARY 2006) AND ITS EFFECT ON
1.1 It was the previously established principle that car parking income is
received inclusive of Value Added Tax (VAT). However, in February
2004 a VAT Tribunal heard the Isle of Wight Council‟s submission on
whether car-parking income received by a Local Authority, specifically
the Isle of Wight Council, should not be liable to VAT.
1.2 The Tribunal ruled in favour of the Council on two preliminary points: -
(i) that the Council was operating its car parks under a special legal
regime (the Road Traffic Regulations Act 1984) governing the
Council‟s provision of off-street parking such that the Council was
acting as a public body governed by public law when operating car
(ii) that HM Revenue and Customs could not deny the Council
treatment as a non-taxable person on the ground that it would
create a significant distortion of competition, as that EU law
provision had not been adequately transposed into UK legislation.
1.3 This means that the Council operated its car parks under special
legislation afforded it and that the issue of competition had not been
properly accepted into UK law.
1.4 An earlier European Court case established that where a public body
acts under public law, such activities must be regarded as not being
engaged in furtherance of business, provided that this does not result in
a distortion of competition with private sector providers.
1.5 HM Revenue and Customs appealed the February 2004 ruling. At that
appeal the Judge stated that while the Council did in fact operate car
parks under a special legal regime, the issue of competition would need
to be reviewed once again. The High Court, therefore, referred the case
back to another VAT Tribunal to consider further the issue of distortion of
competition with private sector providers.
1.6 In January 2006 the Tribunal published its findings on a further two
(i) whether the disapplication of VAT on Local Authority parking
activities would lead to significant distortions of competition on the
demand for car parking;
(ii) whether the disapplication of VAT on Local Authority parking
activities would result in significant distortions of competition on
the supply of car parking (i.e. encourage Local Authorities to
provide more car parks, in order to generate income).
1.7 The Tribunal decided that, considering all the facts presented to it, car
parks provided by the Local Authorities did not lead to a distortion of
competition with private car park providers. VAT would not need to be
paid to HM Revenue and Customs. Therefore, the Local Authorities can
retain all the income they receive through car parking and are not
required to pay over the 17.5% to HM Revenue and Customs.
1.8 HM Revenue and Customs are once again appealing this decision.
2.0 How does this effect Bridgend County Borough Council
2.1 The key points in both Tribunals also relate to Bridgend County Borough
(i) Bridgend provides car parking under the same special legal
regime as the four Local Authorities making the claim (i.e. the
Road Traffic Regulations Act 1984);
(ii) The private car park providers (the competition) in this area are
very similar, in number and location, to the parking facilities
offered in the four Local Authorities making the claim.
2.2 A number of Local Authorities have stopped paying over the VAT
element of these receipts. A larger number are also considering the
proposal to retain the receipts.
2.3 Bridgend County Borough Council should now consider its own position
with regards to VAT on car parking income i.e. either :-
(i) Discontinue paying over the VAT on car parking income to HM
Revenue and Customs;
(ii) Continue to pay over the VAT on car parking income to HM
Revenue and Customs.
3.0 What are the implications if Bridgend County Borough Council
discontinues paying over VAT on Car Parking Income?
3.1 If HM Revenue and Customs win their appeal, then Bridgend County
Borough Council will have to pay over the amount that HM Revenue and
Customs state is owed to them in lost revenue, plus interest (currently
6.5%). It should be noted that this interest rate of 6.5% would be offset
by the 4.5% that the Authority will receive for retaining the receipts, as
part of its investments. This net liability of interest would be less than
?5,000 per annum.
3.2 If HM Revenue and Customs lose their appeal, then Bridgend County
Borough Council will not have to pay over the amount that HM Revenue
and Customs believe is owed to them in lost revenue.
4.0 What are the implications if Bridgend County Borough Council
continues paying over VAT on Car Parking Income?
4.1 This is where the real issue lies.
4.2 Bridgend County Borough Council has up until now lodged „protective
claims’ to HM Revenue and Customs on this matter. These „protective
claims‟ are official forms submitted to HM Revenue and Customs which
state that the Authority is owed an amount (currently ?1.5m), as it has
paid over VAT that it need not have done. These protective claims cover stthe Authority to the period ended 31 March 2006.
4.3 However, an argument that HM Revenue and Customs use against
suppliers who wish to reclaim VAT from them, is that the Supplier (the
Council) should repay the VAT back to its customers. Where the supplier
is unable to do this (e.g. because in this case the Authority cannot
identify its customers), the Supplier will be seen to be „unjustly enriched‟.
This basically means that where a supplier has charged and accounted
for VAT incorrectly, HM Revenue and Customs would be prepared to
repay the money to the supplier if the supplier, in turn, repays the
customer the amount of money that was incorrectly charged to them.
This is clearly impossible when it comes to car parking.
4.4 Where, in their opinion, „unjust enrichment’ has occurred, HM Revenue
and Customs have recently refused to repay the amount of money back
to the supplier.
4.5 The argument that the Local Authority can use in this scenario is that the
Authority is not unjustly enriched, as the „additional money‟ that the
Authority will have returned to it will be repaid to the users of the car park
in the form of other services, e.g. schools, or indeed car parking facilities.
In effect, the taxpayer still receives the benefit and the Local Authority
does not benefit from what a private sector provider would enjoy i.e.
„windfall additional profits‟.
5.0 HM Revenue and Customs View of the position and potential
5.1 HM Revenue and Customs currently maintain that VAT remains
accountable from Local Authorities.
5.2 HM Revenue and Customs are fully aware that a number of Local
Authorities are of the opinion that it will be safer to retain these funds and
risk legal / financial proceedings being taken against them.
5.3 HM Revenue and Customs official policy is that they do not impose any
legal or financial proceedings against the Local Authorities that take this
course of action. They will, however, impose the statutory interest rate of
6.0 The Effect on balances on Later Years, if the case was to continue
for a number of years.
6.1 Discussions have taken place with other Authorities and independent
advisors on this matter. It is realised that any money that is retained in
the form of reserves cannot be retained as balances indefinitely. A
decision will need to be made some time in the future.
6.2 HM Revenue and Customs have also made attempts to recover the
unpaid VAT from those Local Authorities who have decided to withhold
accounting for VAT on car parking receipts. They have, therefore,
assessed some Local Authorities and charged interest on, either, a
monthly or quarterly basis.
6.3 These Local Authorities can then either pay over the monies, plus
interest, or apply to a VAT Tribunal to postpone charging any interest
penalties, pending a final out-come of the situation. This may ultimately
be resolved by the European Courts.
6.4 The process of withholding VAT and then paying over the amount plus
interest will in itself reduce the amount of interest that an Authority would
be charged all at once, should the case be resolved in favour of HM
Revenue and Customs.
6.5 The advantage of withholding the VAT and then paying over the amount,
should the Authority be assessed by the VAT Inspector, is mainly one of
legal technicality. The Authority will continue to maintain throughout that
this sum is not VAT and, in our view, merely an incorrect assessment
following the Tribunal ruling. Therefore, if the assessment is not for VAT
then the Authority should be repaid the money, if the ultimate legal ruling
is settled in favour of the Local Authorities.
6.6 Our VAT consultants have advised that a Local Authority in possession
of an assessment which has been appealed to a VAT Tribunal will be
protected against the “unjust enrichment” rule, used by HM Revenue and
7.1 Bridgend County Borough Council has the option of either:-
a) maintaining the status quo by paying over to HM Revenue and
Customs the VAT element of car parking income, in which case
there is a possibility that HM Revenue and Customs may refuse to
repay the receipts under their “rich unjustment” rule.
b) retaining the full income from car parking receipts and awaiting a
VAT assessment from HM Revenue and Customs and then
paying the amount over and any potential interest charged.
7.2 It can only remain an educated guess as to what the final outcome of
these Tribunals will be and it will remain a risk either way. Cabinet has to
weigh the risk of losing the interest payment of less than ?5,000 per
annum against a potential loss of approximately ?250,000 per annum,
through remaining „on the fence‟.
8.1 Cabinet is requested to approve :-
? withholding payment of these receipts until such a time that HM Revenue
and Customs raise an assessment against the Authority;
? to appeal HM Revenue and Customs assessment to a VAT Tribunal
pending the outcome of the Isle of Wight VAT Tribunal case.
Allan Phillips, CPFA
ASSISTANT DIRECTOR - FINANCE
27 July 2006
Report Author : J Hughes
Isle of Wight Council Tribunal (v/18557) (06.04.2004)
Isle of Wight Council, Mid-Suffolk District Council, South
Tyneside Metropolitan Borough Council, West Berkshire
Council Tribunal (v/19427) (23.01.2006)