Justices rule NHS trusts are taxable for car parking VAT in decision affecting £100m in claims
The Supreme Court has ruled that NHS trusts cannot reclaim VAT on income generated from car parking, determining that they are taxable persons for the purpose of VAT.
The unanimous judgment, delivered today in Northumbria Healthcare NHS Foundation Trust v Commissioners for His Majesty’s Revenue and Customs, could apply to tax payments worth up to £100 million across multiple NHS bodies.
A panel of five justices, led by Lord Hodge and Lady Simler, allowed HMRC’s appeal against a previous Court of Appeal decision which had found that Northumbria Healthcare operated under a “special legal regime” as a public authority and was therefore exempt from VAT on its car parking income.
The dispute originated from HMRC’s refusal to repay £267,443 in VAT accounted for by the trust on car parking charges collected between 2013 and 2016. Northumbria Healthcare had sought repayment on the basis that its car parking operations were carried out under NHS guidance and therefore should not be subject to VAT in the same way as commercial operators.
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The justices noted that 70 other appeals brought by NHS bodies had been stayed pending the outcome of this case, with the total tax in question estimated to be worth up to £100 million.
In its reasoning, the Supreme Court referred to the EU Court of Justice’s interpretation of the Principal VAT Directive, finding that the earlier Court of Appeal decision had been incorrect in law.
The judgment stated:
“The legal conditions under which the trust is providing car parking services are not any different, because of their function as a public authority, from the legal conditions under which their private sector counterparts are providing.”
The court concluded that NHS trusts providing car parking are operating under the same legal and commercial conditions as private sector providers, meaning their activities fall within the scope of VAT.
In unanimously allowing HMRC’s appeal, the justices agreed with the findings of the first-tier tribunal, which had held that treating NHS car parking services differently from those of private operators for VAT purposes would risk creating a distortion of competition.
The ruling confirms that NHS trusts engaged in similar revenue-generating activities as commercial entities cannot rely on their public authority status to claim exemption from VAT under the Principal VAT Directive.
The case arose after the trust’s initial challenge to HMRC’s decision was upheld in part by the upper tribunal, before the Court of Appeal subsequently found in the trust’s favour. HMRC then appealed to the Supreme Court, which has now restored the first-tier tribunal’s original conclusion.
The decision is expected to have implications for NHS bodies across England and Wales that operate car parking facilities. With the court’s ruling now definitive, trusts will be required to account for VAT on car parking revenue in the same way as private operators, unless future legislative changes alter the position.
The judgment reinforces the Supreme Court’s approach to the application of VAT law to public bodies engaged in commercial activity, following established EU and UK principles of fiscal neutrality and competition.
The decision also closes a line of appeals that had been stayed pending resolution of the Northumbria case, providing clarity for both HMRC and NHS organisations on the VAT treatment of car parking income.