Introduction

The case National Car Parks Limited v. Revenue and Customs ([2017] UKUT 247 (TCC)) addresses a significant issue in VAT law concerning the treatment of overpayments made by customers using pay and display car parks. National Car Parks Limited ('NCP'), a prominent operator of such car parks, challenged HM Revenue and Customs' (HMRC) refusal to refund overpaid Value Added Tax (VAT) on excess payments made by customers. This commentary delves into the intricacies of the case, examining the legal principles established and their broader implications.

Summary of the Judgment

NCP operated car parks where customers paid for parking via ticket machines. These machines did not dispense change, compelling customers to sometimes pay more than the displayed tariff if they lacked exact change. NCP sought to reclaim VAT on these overpayments, amounting to £488,669, arguing that such payments were not consideration for the supply of parking services but rather ex gratia payments outside VAT scope.

The Upper Tribunal (Tax and Chancery Chamber) dismissed NCP's appeal, upholding HMRC's position that overpayments constituted consideration for the taxable supply of parking services and were therefore subject to VAT.

Analysis

Precedents Cited

The judgment extensively referenced several key European Court of Justice (ECJ) cases to elucidate the concept of 'consideration' within VAT law:

• Staatssecretaris van Financiën v Association Coöperatieve Aardappelenbewaarplaats GA (Dutch Potato case): Established that consideration must have a direct link to the supply of services.
• Apple and Pear Development Council v Customs and Excise (Apple and Pear): Highlighted the necessity of a causal relationship between payment and service benefits.
• Tolsma v Inspecteur der Omzetbelasting Leuwarden (Tolsma): Emphasized the requirement of reciprocal performance for a taxable supply.
• Commission v Finland (Finland) and Gemeente Borsele v Staatssecretaris van Financiën (Dutch School Bus case): Discussed the insufficiency of the link between payments and services when payments are based on factors unrelated to the service's actual value.
• Glawe Spiel- und Unterhaltungsgerate v Finanzamt Hamburg-Barmbek-Uhlenhorst (Glawe) and Metropol Spielstätten Unternehmergesellschaft (Metropol): Addressed the taxable amount based on the portion of consideration actually received.
• Commission v French Republic (French Tips case): Differentiated between compulsory service charges and voluntary gratuities regarding VAT liability.

Legal Reasoning

The tribunal centered its analysis on Article 73 of the Principal VAT Directive (PVD), which defines the taxable amount as the "consideration obtained...in return for the supply." The core question was whether overpayments made by customers constituted such consideration.

Drawing from the Dutch Potato and Campsa cases, the tribunal affirmed that consideration must be a subjective value directly linked to the supply of services. In the hypothetical example presented, a customer pays £1.50 for a service priced at £1.40 without receiving additional benefits for the excess 10 pence. Despite the overpayment seemingly voluntary, the tribunal reasoned that the excess payment was not optional within the contractual framework for obtaining parking rights.

Unlike the King's Lynn case, where the statutory order fixed parking charges, NCP operated without such constraints, allowing overpayments to be directly linked to the supply of parking services. The tribunal rejected the notion that overpayments were ex gratia, emphasizing that the excess payments were integral to the consideration for the service provided.

Impact

This judgment reinforces the principle that any excess payment made in the course of a contractual supply of services is subject to VAT, provided it constitutes consideration. Car park operators and similar service providers must account for VAT on all payments received, even if overpayments are not directly linked to additional services. This decision clarifies the ambit of taxable consideration under VAT law and may influence how service fees and related payments are structured and reported.

Complex Concepts Simplified

Consideration in VAT Law

Consideration refers to what a supplier receives from a customer in exchange for providing a service or good. Under VAT law, this is not limited to the exact price but includes any additional payments that are a direct result of the supply agreement.

Direct Link

A direct link means that the payment made by the customer is directly connected to the supply of the service. There must be a causal relationship where the payment is a consequence of obtaining the service, not influenced by unrelated factors.

Ex Gratia Payments

Ex gratia payments are voluntary payments made without any obligation or expectation of receiving additional benefits in return. For VAT purposes, such payments are generally outside the scope unless they are linked to the supply of services.

Conclusion

The National Car Parks Limited v. Revenue and Customs judgment conclusively established that overpayments made by customers in pay and display car parks are considered taxable consideration under VAT law. By dismissing NCP's appeal, the Upper Tribunal reinforced the necessity for service providers to account for all payments received as consideration, irrespective of their voluntary perception. This decision provides clarity on the application of Article 73 of the PVD, ensuring that VAT liabilities encompass all forms of consideration directly linked to the supply of services. Consequently, businesses must meticulously assess their payment structures to comply with VAT regulations and avoid potential disputes.