VAT and parking The HMRC challenge In the final part of a series* on how UK VAT rules apply in the parking sector, Keith Miller, of specialist VAT advisory firm ETC Tax, looks at the key VAT challenge that parking businesses face and the options available for businesses to minimise its impact he key VAT issue occupying HMRCs mind at the moment is its assault on operators ability to recover VAT costs (which I referred to in my first article*). As a consequence of agreeing that operators can treat parking charge notices (PCNs) as outside the scope of VAT, HMRC is now seeking a restriction to the level of VAT recovery. Although operators were only challenged on VAT recovery when they sought a refund of VAT overpaid on PCN revenue, HMRC is now challenging those who have already treated PCNs as VAT-free but have not restricted VAT recovery. It also appears that HMRC is beginning to widen its net, especially now the Treasury is even more keen to collect as much tax as possible. T Restricting recovery We are aware that some operators have not only received assessments to recover VAT that HMRC claimed should not have been recovered, but have also been issued with penalties on the basis that they should have known that a VAT restriction needed to be applied. It is clear that HMRC is willing to adopt an aggressive approach when an operator has not restricted VAT recovery. This is rooted in the success HMRC had in the 2016 VCS Upper Tier VAT Tribunal case, where it argued that VCSs VAT recovery should be restricted on the basis that the issue and enforcement of PCNs by VCS was not a taxable activity. HMRC is now seeking a restriction to the level of the VAT recovery and is challenging those who have already treated PCNs as VAT-free but have not restricted VAT recovery HMRC is keen to apply the findings of the case to other operators. Although it has still not published a single word on the impact of PCNs on VAT recovery, HMRC appears to expect operators to be aware that it requires a restriction to be applied. It is somewhat ironic that HMRCs officers often fail to understand their own policies, yet it is happy to issue penalty notices on the basis that ignorance is not a valid excuse. Be prepared! There will be further litigation (I am acting for a number of clients on this matter), not just because the 2016 VCS judgment is technically flawed, but also because the VCS case is so different from that of many other operators. HMRC is reluctant to acknowledge this, so operators need to be prepared to defend their position, particularly if they do not currently restrict VAT recovery. The courts will ultimately decide on the legal veracity of the VCS decision and whether HMRC is justified in superimposing the VCS judgment on contractual arrangements that are very different from the VCS case. Potential damage can be limited if taxpayers are proactive and can demonstrate that they have taken steps to review and assess their position, including taking professional advice. Also, even if a VAT restriction is required, it may be possible to agree a bespoke method with HMRC that limits the restriction required. The simple message is to be aware, not only of the potential challenges faced, but also of the potential remedies to mitigate the risks, if not eliminate them. If you have any questions in relation to this article or any other VAT-related queries, contact keith.miller@ etctax.co.uk * See bit.ly/PNJul21VAT and bit.ly/PNAug21VAT 22 britishparking.co.uk PN August 2021 pp22 VAT.indd 22 22/07/2021 11:11