VAT Ruling: NHS Car Park

The Northumbria Healthcare NHS Foundation Trust VAT case is a landmark UK Supreme Court decision that clarifies when public bodies like NHS trusts must charge VAT on services such as hospital car parking. The case revolved around whether the Trust, when providing car parking, was acting as a taxable business or as a public authority under a “special legal regime” (SLR), which would exempt it from VAT.

The Trust argued that it was subject to a special legal regime because it had to follow Department of Health guidance on car parking, and that this guidance, combined with public law duties, set it apart from private car park operators. HMRC disagreed, saying that guidance is not the same as a binding legal obligation and that exempting the Trust from VAT would distort competition with private car park businesses.

The case went through several levels of appeal. The First-tier and Upper Tribunals sided with HMRC, but the Court of Appeal found for the Trust, saying the combination of guidance and public law duties did amount to a special legal regime. However, the Supreme Court ultimately restored the original decision in HMRC’s favour.

The Supreme Court made two key points. First, for a public body to be exempt from VAT under a special legal regime, there must be a clear, binding legal obligation – such as a law or regulation – that governs how the activity is carried out. Guidance, even if it is expected to be followed, is not enough because it can be departed from and does not have the force of law. Second, the Court confirmed that if not charging VAT would give public bodies a real competitive advantage over private businesses, this would distort competition and VAT must be charged.

This decision has major implications for NHS trusts and other public bodies. It means that unless there is a specific law or regulation governing their activities, they must charge VAT on services that are also provided by private businesses, such as car parking. The ruling affects many similar cases and claims for VAT refunds, most of which are now unlikely to succeed.

In summary, the Northumbria case makes it clear that only binding legal rules – not guidance or general public law duties – can exempt public bodies from VAT. Where public bodies compete with private operators, VAT must be charged unless a true special legal regime applies and there is no significant distortion of competition. This brings much-needed clarity to the VAT treatment of public sector activities in the UK.