In a significant judgment today, the UK Supreme Court has ruled in favour of HMRC in its long-running dispute with Northumbria Healthcare NHS Foundation Trust (“Northumbria”) about VAT on hospital car parking charges. This decision upholds HMRC’s position that income from NHS-operated car parks is subject to VAT, with broad financial implications for NHS Trusts across England.
Background
Car parking income generated by NHS Trusts has always been treated as subject to VAT at the standard rate (currently 20%). In February 2024, the Court of Appeal ruled in favour of Northumbria’s position that the income is non-business. It found that parking services provided by NHS Trusts fell outside the scope of VAT because they were supplied under a “special legal regime” and did not distort competition. However, HMRC appealed to the Supreme Court, which has now overturned that decision.
Key Findings
The Court found that while NHS Trusts must follow government guidelines on pricing and concessions, these are flexible recommendations, not legally binding rules. As such, the NHS is not operating under a “special legal system” for the income to be treated as non-business for VAT purposes.
Hospital car parks also compete directly with nearby private ones, as both offer the same basic service, i.e. convenient parking. If the NHS avoided VAT, it could lower prices or keep more profit, giving it an unfair edge, especially when demand far outstrips supply. This real risk of distorting competition means VAT must apply.
What This Means for NHS Trusts
This ruling creates a binding precedent requiring NHS Trusts to continue charging and accounting for VAT on car parking income. Trusts that had paused VAT payments or submitted refund claims based on the earlier Court of Appeal ruling will not recover that VAT and will now need to consider withdrawing or amending their claims.
The judgment means Northumbria’s claim will not be paid. Nor will the claims of around 70 NHS Trusts awaiting this judgment, which amounted to up to £100 million.
Effect on Car Park Construction Costs
The decision affirms that NHS car parking remains a taxable business activity, allowing Trusts to continue recovering VAT costs on construction and operational expenses. For those with substantial investments in car park infrastructure, this mitigates the risk of large VAT adjustments under the Capital Goods Scheme.
Trusts planning new car park developments can proceed with greater clarity, knowing VAT incurred on construction costs should be recoverable. However, they should still carefully assess contractual and operational models, particularly where third-party involvement is contemplated.
Recommended Next Steps
NHS Trusts should now take the following actions following the Supreme Court ruling:
- Ensure VAT is correctly accounted for on car parking income going forward.
- Consider withdrawing or revising any outstanding claims for VAT refunds on past income.
- Review input tax recovery assumptions on car park capital expenditure.
- Evaluate Partial Exemption methods in light of continued business treatment.
- Confirm third-party contracts align with VAT obligations and determine if restructuring is required.
Need Support?
The NHS VAT team at CRSTAX is available to help Trusts assess the implications of this ruling and provide ongoing VAT compliance support.
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