VAT & Parking: Some consequences of HMRC’s Policy Changes

In the second in a series on how UK VAT rules apply in the parking sector, Keith Miller looks at what businesses should now consider as a consequence of the changes in HMRC’s thinking in relation to the VAT treatment of parking services.

Although the main impact of recent VAT changes has been on operators who issue and enforce parking charge notices (PCNs), the potential consequences spread much further, to all those involved in parking activities, including landowners and payment service providers.

HMRC had until recently allowed landowners to treat PCN income as VAT free, but a recent change in HMRC’s PCN policy now means that landowners can only do so if they are the operator and have a contract with the motorist. Where a landowner appoints an operator, who will typically contract with the motorist, any PCN share going to the landowner will now be subject to VAT. This is a consequence that does not yet appear to have been picked up by most landowners or operators but is one that HMRC has identified.

I have heard claims that PCN share or other payments made to landowners should be VAT exempt because the payments are essentially land-related. This ignores the fact that payments in relation to the lease or occupation of land are subject to VAT where the land is to be used for parking vehicles, so exemption cannot apply. 

The central importance of contractual arrangements when considering the VAT treatment of PCNs leads onto another risk area for operators who manage parking facilities where payment is required, such as pay and display car parks.

Parking payments and VAT

Paysite operators need to be aware that HMRC is now increasingly likely to look closely at the contractual relationship between the motorist, the operator and the landowner when establishing who is providing parking services, particularly if the landowner is either not VAT registered or has not paid VAT on parking revenue.

Even if 100 percent of parking proceeds are distributed to the landowner, HMRC may still argue that it is the operator that is providing the parking services to motorists if signage, tariff boards and other notifications indicate this.  If VAT goes unpaid by the landowner, HMRC may find it easy to collect unpaid VAT from the unwitting operator.  

With payment for parking services increasingly made through third party payment apps, it is more important than ever to ensure that the contractual relationships between all partners are clarified and that steps are taken to ensure that responsibility for paying VAT is clearly established at each stage of a transaction.

Minimising VAT risk

As indicated in my previous article, HMRC has not been quick to update its guidance notes in relation to the VAT treatment of parking transactions. That said, HMRC is always quick to say that VAT is a self-assessed tax, and that neither ignorance nor innocence are valid excuses for VAT errors. However, measures can be taken by each party in the parking services chain to eradicate VAT risk, and such risk mitigation structures often have additional VAT recovery benefits for operators.

When I have referred to HMRC’s revised policy on the VAT treatment of PCNs, I have typically caveated this by talking about how it has now accepted in principle that PCNs are outside the scope of VAT. The reason I say this is that the VAT status of PCNs does still depend on the operator getting things right – not just the signage and other notifications and communications with the motorist – but also its contractual arrangements with the landowner.

For example, additional VAT costs might arise where an operator agrees a payment mechanism with a landowner under which costs – for example capital expenditure (Capex) – incurred by the operator are effectively re-imbursed by the operator ‘withholding’ from the landowner an element of PCN income that would otherwise have been distributed to them, until such time all costs are recovered.

In such a situation, the withheld payments that would otherwise be distributed to the landowner are seen by HMRC as payment by the landowner towards the operator’s Capex costs, and thus subject to VAT.

Such agreements are relatively common and can usually be structured to eliminate irrecoverable VAT costs, but if left unchecked, VAT costs may arise.

If you have any questions in relation this article or any other VAT-related questions, contact Keith Miller.