VAT on Hospital Car Parking and Distortion of Competition - Test Case Ruling

Should NHS trusts be permitted to provide VAT-free parking to patients, staff and visitors, or would that amount to an impermissible distortion of competition? With around £70 million in tax at stake, the Upper Tribunal (UT) has decisively answered that question.

An NHS trust argued that it was entitled to offer VAT-free parking at its hospitals and healthcare sites. On that basis, it claimed back almost £270,000 in VAT it had previously paid. HM Revenue and Customs, however, took a contrary view and won the argument before the First-tier Tribunal (FTT). Around 50 other NHS bodies had made similar repayment claims and were anxiously awaiting the outcome of the trust's appeal to the UT.

The trust serves a predominantly rural area, where public transport is limited, and around 80 per cent of visitors to its sites arrive by car. It is required by government guidance to provide access to its sites, including car parking, at a reasonable price. Parking is provided free to some patients, and at a reduced rate to NHS staff, and any modest surplus generated is ploughed back into healthcare services.

Ruling on the matter, the UT nevertheless upheld the FTT's conclusion that the trust was a 'taxable person' when making supplies of car parking services. Although it was obliged to comply with government guidance as regards pricing and other matters – which did not apply to commercial car park operators – it did not provide parking pursuant to a special legal regime.

Were the trust treated as a non-taxable person – thus enabling it to provide VAT-free parking – there would be actual or potential distortion of competition in that it would be in a position to undercut commercial car park operators by providing parking more cheaply. The FTT was entitled to find that any such distortion would be more than negligible. The appeal was dismissed.