Competitive threat?

For some years now, the Isle of Wight Council has been involved in litigation regarding whether VAT has been properly charged on 'off-street car parking' facilities provided by them. William Webster and Paul Wilmshurst analyse the latest developments.

Everyone knows that local authorities provide a very significant amount of the car parking facilities in our towns and cities. The Isle of Wight case centres upon, inter alia, whether or not the provision of such facilities distorts competition. If there has been no distortion of competition then potentially all the VAT has been paid on these parking facilities since 1973 could be repayable because, as a matter of law, it should never have been paid in the first place.

The European Court of Justice has already ruled on a preliminary issue as to whether a distortion in competition should be assessed based on each local market or the national market. They decided that the assessment should be a national one. No doubt, now the case has been remitted back for determination, there will be a further dispute between expert economists as to whether there is any such significant distortion. In many areas, the local authority will be an obvious monopoly supplier of off-street car parking.

But the matter is not clear because it may be that the price charged to consumers would not have been different even if there had been competition. Even if successful, HMRC will undoubtedly raise a defence of “passing on”: that is to say that the consumers have borne the brunt of VAT being wrongfully imposed and it has not harmed car parking profits of council providers.

All local authorities will need to consider whether or not they have made valid claims for the reimbursement of such VAT in the past. Section 80 of the Value Added Tax Act 1994 requires that HMRC repay overpaid VAT. Claims for the reimbursement of over declared output tax must be made in accordance with section 8(2)(6) and regulation 37 of the VAT Regulations 1995. These prescribe the information that must be referred to. Local authorities will want to make sure they have a clear regime of making accurate protective claims.

The statutory limitation on claims being made is 4 years from the date of overpayment. However, matters are complicated because the House of Lords decided in Fleming (t/a Bodycraft) v Customs and Excise Commissioners [2008] UKHL 2 that the introduction of the very first time cap (which was three years) was not compliant with EU law. Therefore the government was forced to implement a transitional period between 19/03/2008 and 31/03/2009 during which time claims could be made for over declared output tax stretching all the way back to its very introduction in 1973.

Unfortunately, HMRC have already been criticised in the First Tier Tax Tribunal in the Wiltshire case [2010] UKFTT 449 case for their handling of claims. It appears that HMRC have been issuing “decisions” refusing to pay any monies together with an apparent guillotine 30 day time limit to appeal. In Wiltshire an “extension of time” was requested in respect of appealing to the tribunal “decisions” of HMRC contained in letters dated 14 December 2007, 7 July 2007 and 7 July 2008 that VAT on off-street parking had not been overpaid.

The claims were made by virtue of voluntary disclosures rather than obviously identifying themselves as claims. There was a further voluntary disclosure on 24 July 2009 and HMRC did not dispute extension of time in respect of this. The tribunal considered matters and granted an extension of time. The core of the judgement is reflected in two passages below:

“We find it easy to understand Council officials who were not VAT professionals could have missed the importance of the communication of appealable decisions by these letters and instead have formed the incorrect impression that nothing of substance had changed in HMRC’s practice of accumulating claims for action, finally, when the ECJ’s judgement in the Isle of Wight case became available.” (paragraph 30)

“We criticise the terms of the letters… in that they demonstrate a falling short by HMRC in the standards of good administrations which taxable persons have the right to expect from HMRC in dealing with their tax affairs. It should not conceivably be necessary to consult a VAT professional in order to ascertain whether a letter from HMRC contains an appealable decision.” (paragraph 80)

What is curious about the case is that there appears to have been no consideration of the remedies available to the council and the case was decided on procedure alone. Had the tribunal’s mind been addressed to section 80 of the 1994 Act they would have seen, as the authors of Tolley’s Value Added Tax (2010) put it, at paragraph 23.16: “Nonetheless, there is equally nothing to suggest that the right to pursue a restitutionary claim under s.80 should be limited save by operation of the three-year time limit. Consequently, it follows that a taxable person could bring a second or subsequent claim under s.80 provided it is done within three years of the relevant date.” A claim is said to be “completed” following University of Liverpool v Commissioners of Customs and Exercise VAT Decision 15769 (July 2000) if it had been rejected in full by HMRC and the (30 day) time limit for appealing has expired.

In the writers’ opinion therefore, the Wiltshire case is peculiar in this respect: it appears that there was no need at all for any application to be made for an extension of time in respect of the letters. All that needed to be done was that a new claim be lodged with HMRC.

Conclusion

Even if the authority has not been making claims for reimbursement in the past, it is important that they begin doing so as substantial amounts are likely to be involved and the Isle of Wight case may go on for years to come. There are technical legal requirements for the making of these claims and it is important to make sure that these are complied with, so as to ensure that monies can be re-claimed in the event that HMRC are required to repay the Isle of Wight in respect of VAT paid on their off-street parking services.

William Webster and Paul Wilmshurst are barristers at 12 College Place Chambers, Southampton (www.12cp.co.uk).