20 December 2022
The Upper Tribunal has reached the decision that local councils are liable to pay VAT to HMRC on overpayments made by customers because the ticket machine does not give change.
The Borough Council of King’s Lynn and West Norfolk operates a number of off-street car parks in its local area. Its ticket machines did not give change, so overpayments were frequently made by customers who did not have the correct coins to make the exact payment.
Back in 2012, the council won an argument in the First-tier Tax Tribunal that the extra funds earned from the overpayments were not subject to VAT. As a result, many other councils successfully claimed VAT refunds from HMRC they had previously accounted for on car park overpayments. However, in a subsequent appeal brought by National Car Parks (NCP), the Court of Appeal decided in 2019 that overpayments in NCP’s car park ticket machines were in fact subject to VAT. In response, HMRC took the view that the NCP judgment overruled the earlier tribunal decision in Kings Lynn, and changed its policy to confirm that such payments were additional consideration for car parking, on which VAT was payable.
The King’s Lynn dispute has now returned to the VAT tribunals, where the council has argued that the NCP decision applies only to private parking providers. The council believed that it was bound by other non VAT related legislation, which limit its charges to those set in its annual parking tariffs, so any overpayments made could not be further consideration for parking, so the extra money it had kept was outside the scope of VAT.
The Upper Tribunal has now, however, decided an overpayment for car parking is subject to VAT, whether the car park is run by a private business or a local authority. It found that the local authority legislation cited by the council did not prevent it from collecting overpayments offered by the users as part of the parking agreement with a customer using their car parks.
As card-only ticket machines and parking apps are becoming the predominant method of paying for parking, it probably won’t be too long before these disputes over cash payments are a thing of the past. But until then, motorists using local authority car parks may be surprised councils have tried to ‘have their cake and eat it’ by trying to keep the VAT element of the fees they readily accept, despite these being higher than their mandatory maximum charging rates.