Defeat over car park VAT fees to cost councils £1bn
Councils have lost a billion-pound battle with the taxman over the payment of VAT on car park fees. Four councils – the Isle of Wight, West Berkshire, Mid-Suffolk District and South Tyneside Metropolitan – had brought a test case before a tax tribunal.
They argued they should not have paid VAT on off-street parking fees, saying it was part of their traffic management duties, which are exempt.
Other councils had similar claims against the taxman – some going back to 1973 – and had been standing by awaiting the ruling.
Row: Councils must now pay VAT on the money they earn from car parks
David Phelps of accountant PricewaterhouseCoopers said: ‘There was a large amount at stake.’
Westminster Council had lodged a claim worth over £30million. But the Revenue argued that allowing councils to avoid VAT on parking spaces would hit private operators.
The legal action has been running since 2000 and may not have ended. Adrian Wood of accountant KPMG said the councils were considering an appeal.
Council car parks took £440million in 2002-03 and the sums involved are bound to have increased since then. Councils run 70 per cent of the parking market.
The case was referred to the European Court of Justice in 2009 and it ruled that for the taxman to prove there was a distortion of competition it had to show there was a ‘more than negligible’ impact on the wider market.
The tax tribunal said if councils did not pay the VAT, fewer commercial car parks would open or remain in operation.
The tribunal believed decisions on forms of ‘outsourcing’ would tend to be distorted in favour of those that left the local authority as the provider of off-street car parking, with the commercial sector providing at most the management.
Meanwhile, a separate decision means that if customers make overpayments on their car parking charges, the extra will not be subject to VAT and they will instead be treated as donations to the council.
The Borough Council of King’s Lynn & West Norfolk will get a £44,000 rebate for overpaid VAT.
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