Is car parking provided by an NHS trust subject to VAT at 20% (as car parking otherwise is) or outside the scope of VAT? This was the matter addressed by the Supreme Court (SC) judgement in Northumbria Healthcare NHS Foundation Trust v Revenue & Customs Commissioners [2025] UKSC 37.
Engaged as a public authority
The relevant legislation (S.41A VATA) excludes from the scope of VAT goods or services (i) provided by a public authority which is (ii) engaged as a public authority. The ‘engaged as’ provision means that while a local council might be able to treat the provision of street cleaning as outside the scope of VAT (O/S), it would have difficulty obtaining O/S treatment for selling fish and chips, alcohol and cigarettes (even if it was for the public good).
Even if it is acting as a public authority, there is a second test. That body must also show that O/S treatment would not lead to a significant distortion of competition.
In the case of Northumbria Healthcare NHS Foundation Trust (the Trust), the SC reversed the decision of the Court of Appeal (CA). The SC held that car parking provided by the Trust (a public authority) was chargeable to 20% VAT because the Trust was not acting as a public authority in providing that parking. This was the case even though the Trust followed relevant guidance issued by the Department of Health to provide such parking and was obligated to act in accordance with such guidance.
The SC made the point that public authorities will always be obligated to act in accordance with at least some guidelines and regulations, but this does not mean that every activity which they perform is acting ‘as a public authority’. Specifically, it does not create a ‘special legal regime’ under Article 13 of the Principal VAT Directive, which requires unique legal constraints not applicable to private operators. A very loose analogy could be: merely obeying the law doesn’t make a person a lawyer.
The types of activities that the EU and UK law actually have in mind when referring to being ‘engaged as a public authority’ are those activities that cannot be performed by the private sector, such as issuing passports and driving licences or charging court fees. Those services are not VATable because no one exists in the private sector who could potentially compete with the relevant public authority.
Significant distortion of competition
The ‘significant distortion’ provision wasn’t a necessary part of the judgement: since the Trust was not acting ‘as a public authority’, the second test did not apply. Even so, it is useful to consider since the SC did give its thoughts on the matter and disagreed vehemently with the CA’s conclusion.
The CA had focused on the purpose of the Trust in providing parking and concluded that no significant competition occurred because:
- The Trust tried to ensure that only those travelling to the hospital could use the parking
- The Trust was required to retain additional income instead of passing on the VAT saving to customers (i.e. not reducing its prices by the potential VAT value to undercut other potential suppliers)
- Local alternative car parks were ‘often fully utilised’ (which was taken as evidence that the Trust was not competing with them in the sense of taking away their custom)
The SC said that there was significant (i.e. non-negligible) distortion because:
- Potential providers of car parking could also potentially supply parking to hospital visitors
- The fact that the Trust could ‘retain additional income that would otherwise be payable to HMRC is a barrier to entry for future potential entrants’ (who would not be able to retain such additional income)
- Great unmet demand could (potentially) be met by entrants to the market, and non-taxation of public bodies would inherently disadvantage potential private sector entrants
The takeaway here is that a public authority which tries to avoid distortion by raising its fees above the market, keeping the VAT savings (if hypothetically achieved) and reinvesting those savings back into its own activities cannot, by doing so, circumvent the significant distortion provision. Such distortion arises from the fact that it is providing similar or identical services to those actually or potentially provided by businesses.
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