It has long been HMRC’s view that students purchasing food from their college cafeteria or parking at their institute is an activity closely related to their education. As a result, these services are treated as VAT-exempt by the education provider.
In contrast, it has always been HMRC’s policy that VAT must be accounted for on cafeteria sales to hospital patients or when they pay to park at a medical facility. HMRC does not consider these services to be essential to a patient’s medical treatment.
This is an interesting stance for HMRC to take, especially given that the legal framework for both the education VAT exemption and the healthcare VAT exemption adopt broadly the same construct.
Noticing this apparent dichotomy, Northumbria Healthcare NHS Foundation Trust submitted a claim to HMRC in 2017 to recover £267,000 in VAT it believed it had overpaid on parking fees between 2013 and 2016. This claim was escalated to the First Tier Tax Tribunal (‘FTT’) with the Trust offering three separate arguments to support their view.
The Trust’s first two arguments, namely that the provision of parking services was not an economic activity, nor are they provided under a special legal regime, were both dismissed.
However, when considering whether the services were closely related or essential to a patient’s VAT exempt medical treatment, the FTT agreed with the Trust that the overarching EU Principal VAT Directive had not been properly implemented into UK law. Nevertheless, the FTT concluded that the parking services were still not exempt. For a service to be carved into a social VAT exemption, it must be essential in supporting the principal service, and the purpose must not be to obtain additional income in direct competition with commercial enterprises that are subject to VAT.
In the FTT’s view, car parking may make accessing medical care easier for a patient, but the ability to park on site was not a necessary precondition or essential part of a patient’s diagnosis, treatment, or care. The court was seemingly influenced by the fact that not all patients arrive at the Trust’s facilities by car or require parking on site. Therefore, it showed medical care provided by the Trust could still be assured without provision of parking. The court did express some sympathy that access to healthcare may be dependent on a user being able to park onsite, but this was not an indispensable stage of the hospital’s treatment. Furthermore, the Trust provided car parking facilities in direct competition with commercial operators who must charge VAT, with the FTT citing one example where one of the Trust’s facilities was used as unofficial airport parking.
A large number of Trusts have claims stood behind Northumbria, so this outcome will be very disappointing for the NHS. What may be of greater concern though is whether HMRC will continue to support its policy of exempting parking and catering for college students, given the legal framework and principles are fundamentally the same as for hospitals.
The Northumbria case may provide just the excuse HMRC needs to remove this relief. That is unless HMRC truly believe it is more essential for a student to park and eat at their educational institution than it is for a patient to attend their medical appointment.