Northumbria Healthcare NHS Foundation Trust v R & C Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 06 October 2022 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2022] UKUT 267
Mrs Justice Bacon, Judge Jonathan Cannan
Upper Tribunal (Tax and Chancery Chamber)
VAT – NHS trust – Provision of car parking facilities – Whether trust acting as a public authority and not as a taxable person – Whether supply provided under a special legal regime – No – Whether treating as not a taxable person would lead to significant distortion of competition – Yes – EC Council Directive 2006/112, art. 13 – VATA 1994, s. 41A – Appeal dismissed.
In Northumbria Healthcare NHS Foundation Trust v R & C Commrs [2022] BVC 510, the Upper Tribunal (UT) upheld the decision of the First-tier Tribunal (FTT) in Northumbria Healthcare NHS Foundation Trust [2021] TC 08056 that car parking facilities at hospital and healthcare sites were not provided, by the trust, under a special legal regime and were therefore subject to VAT.
The Trust provided goods and services for the health service in England and was required to ensure that its sites and services were accessible at reasonable cost. The area covered by the Trust was mostly rural with limited availability of public transport. 80% of visitors to the main hospital sites arrived by car. The Trust provided parking for patients and visitors, following NHS/Department of Health guidelines.
The Trust had argued, before the FTT that it should not be regarded as a taxable person in relation to the supply of these car parking services under EC Council Directive 2006/112, art. 13(1) and VATA 1994, s. 41A. It was acting as a public authority, under a special legal regime. The FTT dismissed their appeal on this and two further grounds that were no longer in issue.
The FTT had determined the Trust did not supply the car parking under a special legal regime noting that they could not point to any statutory or contractual provision that stated they must provide parking or provide it in a particular way. The fact the Trust was required to take certain matters, such as reasonable cost, into account that private operators were not required to consider did not elevate guidance into a public law regime. But even if they were wrong, and the Trust was supplying the services as a public authority, the FTT concluded that treating them as a non-taxable person would lead to significant distortion of competition and therefore VAT was due on the supply.
The Trust appealed on two grounds:
- the FTT erred in law in concluding the Trust did not provide car parking under a special legal regime; and
- the FTT erred in law in concluding that treating the Trust as a non-taxable person would lead to significant distortions of competition.
Following the extensive ECJ caselaw on this issue, as summarised in R & C Commrs v Chelmsford City Council [2022] BVC 504, the UT asserted that the circumstances in which authorities will not be regarded as taxable persons should be interpreted strictly. All the conditions laid down by national law should be analysed to determine whether an activity was being engaged in under a special legal regime applicable to bodies governed by public law, or under the same conditions applicable to private economic operators. Simply being authorised to carry out the activities was not enough. It was the way in which the activities were carried out that was decisive. The activity must involve or be closely linked to the exercise of rights and powers of that public authority.
It was not disputed the Trust took its powers from the National Health Act 2006. The Trust argued the NHS/Department of Health guidance established public law obligations that did not apply to private operators. HMRC submitted it was not sufficient the public authority was subject to a generic public law obligation to follow guidance. There must be specific provisions of national law that gave rise to the special legal regime. The UT agreed with HMRC noting that nothing in that general principle distinguished the provision of car parking facilities from any other activity of the public authority or demonstrated that the pursuit of that specific activity involved or was linked to the exercise of rights and powers of public authority. The FTT did not therefore err in law in finding that the Trust did not provide car parking under a special legal regime.
This conclusion was sufficient to dismiss the appeal but, if it was wrong, the UT considered the second ground of appeal.
It was common ground HMRC bore the burden of proof and had to show if the Trust were treated as a non-taxable person that would lead to significant, or more than negligible, distortion of competition.
The FTT had found, as a fact, there was actual competition between the Trust and private operators. The Trust submitted that opportunities for competition were limited, and where they did arise, the Trust was required by guidance to take steps to avoid it. The UT rejected this argument noting that guidance to the effect that public authorities may take steps to avoid competition did not negate the existence of the competition. Given that the guidance acknowledged the existence of competition with private operators the FTT was entitled to find there was actual competition between the Trust and nearby private operators.
The FTT went on to find there would be a distortion of competition through the ability of the Trust to provide cheaper parking or derive a higher profit from the activity if VAT ceased to be chargeable. That potential difference could not be described as negligible. The UT found the FTT had not erred in its approach and those were clearly conclusions it was entitled to reach on the evidence before it.
The appeal was dismissed on the first ground of appeal but would also have been dismissed on the second.
This will be a disappointing result for the Trust and the other 50 similar appeals stayed behind this one given the wholehearted endorsement of the FTT’s approach and findings, following a comprehensive analysis of the relevant caselaw, including the recent decision of the UT in R & C Commrs v Chelmsford City Council [2022] BVC 504.
Comment by Angela Bedi, Senior Tax Writer at Croner-i.
Michael Firth, Counsel, instructed by VATangles VAT Consultancy appeared for the appellant
Howard Watkinson, Counsel, instructed by the General Counsel and Solicitor for His Majesty's Revenue and Customs appeared for the respondents
[1] This is an appeal against a decision of the First-tier Tribunal (the FTT) released on 11 March 2021, [2021] TC 08056 (the Decision). The FTT dismissed the appeal of Northumbria Healthcare NHS Foundation Trust (the Trust) against HMRC's determination that VAT was chargeable by the Trust on its supplies of car parking at hospital and healthcare sites. On the basis of that determination HMRC refused to repay VAT accounted for by the Trust during the periods 05/13 to 03/16.
[2] The single issue in this appeal is whether the Trust is a taxable person when making supplies of car parking in car parks at its hospitals, as the FTT found, or whether in so doing it is acting as a public authority pursuant to article 13 of the Principal VAT Directive 2006/112/EC (PVD) as implemented by section 41A of the Value Added Tax Act 1994 (VATA). That in turn raises two questions: first, whether the Trust's supplies of car parking are made pursuant to a “special legal regime” applicable to the Trust, which is not applicable to private economic operators; and secondly, if so, whether treating the Trust as a non-taxable person would lead to a significant distortion of competition.
[3] At the hearing before us on 17 May 2022 it was agreed that further submissions would be provided once the Upper Tribunal had handed down its (then pending) decision in HMRC v Chelmsford City Council. That was handed down on 15 June 2022 ([2022] BVC 504), following which we received written submissions from both parties. We have taken account of those submissions in this decision. HMRC also, in August, drew our attention to two passages in the decision of the Upper Tribunal in R & C Commrs v Mid Ulster District Council handed down on 19 July 2022 ([2022] BVC 507). While we have referenced that decision for completeness below, the issues in that case were quite different from the issues in the present case and do not have any material bearing on our analysis in this decision.
[4] The amount of VAT at stake in this appeal is £267,443, but we understand that around 50 similar appeals by NHS bodies are stayed behind this appeal, with the total tax at stake of around £70m.
[5] The FTT heard evidence from two witnesses on behalf of the Trust, which it found to be credible; it fully accepted their evidence of fact. The material findings of fact, based on the written and oral evidence, are set out at paragraphs 11–32 of the Decision. For the purposes of this appeal, the following summary suffices, with references to the relevant paragraphs of the Decision.
[6] Under the Trust's constitution, the principal purpose of the Trust is to provide goods and services for the purpose of the health service in England, but the Trust may also carry on activities for the purpose of generating additional income in order to better carry on its principal purpose (paragraph 14).
[7] The Trust is required by its stakeholders and relevant guidance to ensure that its sites and services are accessible at reasonable cost. That obligation includes the provision of parking for patients and visitors at a reasonable price (paragraph 23). The area covered by the Trust is mostly rural, and availability of public transport can be limited or non-existent. Around 80% of visitors to the Trust's main hospital sites arrive by car (paragraph 11).
[8] The Trust's parking facilities are mostly used by those accessing the hospital and healthcare facilities. The location of some of the Trust's sites means that they are unsuitable for parking and visiting...
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