Councils consider appeal after setback in car park VAT test case

Four local authorities have until early December to seek permission to appeal against a First-Tier Tribunal ruling in the long-running car park VAT dispute.

The councils – Isle of Wight, West Berkshire, Mid-Suffolk and South Tyneside – argued that they should not have paid VAT on off-street car parking charges as this was part of their traffic management duties. Traffic management is VAT-exempt.

Many other councils have similar cases pending the outcome of the test case. The sums under dispute have been estimated to be worth £1bn.

In essence, the Tribunal had to decide whether the provision of these off-street car parks by local authorities distorted competition. If no such distortion existed or if it were negligible then VAT, going back to the 1970s, would be repayable by HM Revenue & Customs.

But HMRC argued that the market would be distorted if councils did not have to pay VAT as commercial suppliers would feel disadvantaged in the market and would be less likely to enter it.

In Isle of Wight Council & Ors v Revenue & Customs [2012] UKFTT 648 (TC), the Tribunal – Sir Stephen Oliver QC sitting with Nicholas Paines QC and Philip Gillett FCA – found that competition would be distorted “to a more than negligible extent”. It heard that 36% of commercial car parks had a local authority car park in the same postcode.

Christopher Vajda QC, Ben Rayment and Brendan McGurk of Monckton Chambers represented HMRC.

A statement on the set’s website said: “This litigation is regarded as a test case and although car-parking was the subject considered by the Tribunal, the same principles must be applied to the provision of any service or supply provided by a local authority where there are private operators providing the same service in the same market.

“Local authorities had collectively brought very significant Fleming claims which, pursuant to the Tribunal's Judgment, HMRC will not be required to refund."

An Isle of Wight Council spokesman said: "Although the recent outcome is disappointing, the council along with the other local authorities involved in the legal case will now meet to discuss the way forward.

"The legal firm handling the case on behalf of ourselves and the other councils has been running it on a so-called contingency fee – what is in effect a no-win no-fee basis. This means there are no legal fees to pay and we will not be required to pay any money to Revenue and Customs as a result of a case as the council has continued to pay VAT on off-street parking charges."

Neasa MacErlean