A recent briefing paper from Price Waterhouse Coopers, the international professional services firm, draws attention to a ruling by the European Court of Justice which could affect parking charges and revenues in Britain and right across the EU.
The European Court of Justice (ECJ) were asked to give judgement on a case referred from the courts in Portugal, where a dispute had arisen between the City Council in Oporto and the local tax authorities, who believed that the revenue from parking on public highways and in off-street car parks operated by the Council was liable to tax (VAT).
The second issue concerned the powers of local tax authorities to determine the level of competition in the provision of parking facilities. This was an important matter, since it has been broadly accepted that where there is substantial competition between local authorities and private parking companies, all must pay VAT - to avoid giving an unfair advantage to the local authority ('a distortion of competition') when the private company is liable for VAT. Yet where the local authority is the sole provider of parking, or virtually so, it has been customary to regard this activity as a 'non-business' and therefore exempt from VAT.
On the first issue the ECJ ruled that local authority parking could be regarded as a 'non-business' where the activity involves the use of public powers and is subject to the local legal regime. However, on the second matter, which involved an assessment of competition in the provision of parking, it ruled that in view of the nature of the analyses, which would be needed, it would be for the national courts to determine the issue.
This means that in the UK, the situation is that it is up to Customs & Excise to say what is a significant distortion of competition, but they can be challenged through the UK courts.
As Price Waterhouse Coopers is reported to have said: "A local authority in the UK can treat all of its car parking income as non-business and outside the scope of taxation, provided that it is operating its car parks under public law that constitutes a special legal regime - which we believe may well be the case - and provided that this does not lead to a significant level of distortion of competition - which we believe may well be a lot more difficult to establish."
"It seems to us that in an urban area where there are local authority and privately-run car parks operating side by side it will be very difficult to persuade Customs & Excise that this does not lead to a significant distortion of competition, if the local authority's off-street parking charges were to be outside the scope of taxation but those of the privately-run car park were 17.5% higher on account of being standard-rated for VAT."
These issues are not clear-cut, say Price Waterhouse Coopers, and not yet been "really tested through the courts."
The likely view of Customs & Excise
At first sight, it would seem that a local authority, which had a monopoly of parking facilities in its area, could succeed with a claim that its activities were non-business. This depends on assessing the issue on a purely local basis, taking each local authority on its own. If the Customs contested this, ultimately it would be necessary to convince the courts that competition should be considered in a narrow local way.
However, say Price Waterhouse Coopers, Customs have indicated that they believe that distortions of competition should be looked at nationally rather than locally. It would then be difficult to persuade them that one local authority could be treated differently from another, and especially difficult to make differentiations between car parks within the area of a single authority.
Are excess charges non-business?
If excess parking charges were to be regarded as a further consideration for a supply of parking they would have the same liability as normal parking charges, which could be non-business anyway. Alternatively, excess charges could be regarded as not a consideration for a supply of parking at all, and therefore outside the scope of VAT. Liability for VAT only becomes an issue where the car parking charges are already standard-rated.
Where systems of decriminalised parking enforcement have been adopted, parking attendants issue offending vehicles with penalty charge notices and can authorise wheel clamping or the towing away of vehicles. Customs & Excise accept that these are penalties, not further considerations for parking, and that they are outside the scope of VAT.
In car parks, excess charges can be issued in a variety of circumstances - such as parking in a bay designated for the disabled or in a location where parking is not permitted. It is argued that this cannot be regarded as an extension of a parking charge, since officially no parking has been supplied, and therefore no VAT can be levied.
Less definite are issues, which surround excess charges levied in other circumstances, for instance where the amount of time paid for has expired or no payment has been made at all. If charges are imposed, are these further charges for the supply of parking? It could be argued that additional charges were being applied as part of a local legal regime, with no significant distortion of competition, in which case they could be viewed as a penalty and outside the scope of taxation. Price Waterhouse Coopers believe that "the issue is not free from doubt," and suggest the following: "Our view is that excess charges for illegally or inappropriately parked vehicles cannot be further consideration for any supply of parking, and should properly be treated as outside the scope of VAT. Any local authority that is accounting for output tax on these charges, or on excess charges where decriminalised procedures have been implemented should be looking to stop accounting for VAT going forward, and to make a claim to Customs for VAT previously declared in error."
The issues are complex, and their determination could result in considerable changes to parking charges and revenue if there is any extension of VAT liability. Either motorist’s could be faced with higher charges through the addition of VAT, or the local authority could suffer reduced revenue by subtracting a VAT element from current charges.
