01 November 2022
Following a recent VAT tribunal appeal it is likely that HMRC will review its guidance on VAT exemption for student car parking and catering facilities at educational institutions and subject them to 20% VAT.
If implemented, the change could create a VAT cost for UK education institutions in the region of £135m per annum. Alternatively, if the cost is passed on, it could increase the average student’s expenditure by about £50 per annum.
Currently, supplies of car parking and catering facilities by educational institutions for the direct use of their students are treated as VAT exempt. This is on the basis that they are supplies closely related to a principal supply of VAT exempt education. However, this VAT treatment is now at odds with the outcome of a VAT tribunal appeal case which held that car parking and catering facilities made available for patients at NHS hospital sites cannot be closely related and are subject to 20% VAT.
The Northumbria Healthcare NHS Trust provided pay and display car parking for patients, visitors, hospital staff and contractors. Standard rated VAT at 20% was originally charged on the parking fees. However, adopting the reasoning underlying the VAT exemption for student car parking and catering facilities, the Trust submitted a claim to HMRC to recover VAT of c.£267,000 it believed to have overpaid. HMRC disagreed and disallowed the claim.
The tribunal agreed with HMRC and held that supplies of car parking by the Trust were neither closely related nor essential to the principal supply of hospital and medical care. To be closely related, the provision of the service must be an indispensable stage in the supply of hospital and medical services for the purposes of achieving diagnosis, treatment and cure of a patient. It is not sufficient that services improve the comfort and well-being of the patients.
This outcome and the stance taken by HMRC is clearly inconsistent with the current VAT exemption relating to student car parking and catering provided by educational establishments. Can HMRC maintain this stance? Is it reasonable to say the provision of car parking and catering facilities to students are more of an indispensable and essential element of the delivery of education by educational institutes? Probably not.
It is perhaps inevitable that HMRC will issue guidance in due course removing the VAT exemption for student car parking and catering facilities. Considering today's cost-of-living crisis, and with students already facing difficult financial pressures, adding 20% VAT to their catering and car parking costs will be another blow to students.