How does HMRC define a car park and why does it matter to an ice-cream man

A company that owned a petrol station rented out a car park located on its site to a valeting business, which used the area to clean customers’ cars. The company treated this supply as a VAT-exempt licence to occupy land. However, HMRC disagreed, and said VAT was due on the rent charged to the valeting business because the garage owner was ‘granting a facility for parking vehicles’, a use of land that is specifically excluded from VAT exemption.

The First-tier Tax Tribunal has now agreed, upholding HMRC’s retrospective VAT bill of £8,000. It noted that the land was described as a car park on the contract between landlord and tenant, and the valeting business did not have the legal right to prevent customers of the petrol station parking there when visiting its shop.

In concluding that the garage owner had provided parking facilities, the tribunal also found that all that is required for a vehicle to be ‘parked’ is that it is stationary, even though in this case the cars had only stopped so they could be cleaned.

The tribunal was persuaded by a similar decision from 2014 concerning an ice cream van operator, who paid rent to a local council to position his van in a public car park when selling ice cream. This case also involved a vehicle, in this case the ice cream van, which was parked on the site, so the tribunal found that VAT was due on the rent.

These decisions highlight the risk of an unexpected VAT bill on the rent of a car park site where the tenant’s business involves stopping vehicles there for any reason. HMRC’s own guidance on this is not clear, and even accepts that the letting of land, used at other times as a car park, for holding a market or a car boot sale is a supply of land rather than parking facilities, despite the fact that such events will involve vehicles being stationary on the site. In either case, the valeting business and ice cream seller could have been forgiven for thinking they were simply hiring a pitch of land to trade from rather than a place to park vehicles.

While some hirers will be VAT registered and able to recover any VAT charged to them, many others are likely to be small businesses whose turnover does not exceed the VAT registration threshold. If VAT is payable on the rent, they will be forced to either absorb the VAT as a cost or register for VAT to recover it. Either way, this could mean charging customers more for the goods or services they provide from car park sites. Landlords letting out areas marked out as car parks may also be at risk of VAT assessments from HMRC for the preceding four years, which it may be difficult to pass on to the tenant retrospectively.

HMRC has not directly commented on this decision so far, and it is not yet known whether it will be appealed, but landlords and tenants in such arrangements should check the VAT position of their contracts carefully.