Is There VAT on Car Parking? When It Applies/Not Applies?

Value Added Tax (VAT) is a consumption tax imposed on goods and services at each stage of production and distribution. It is gathered by businesses in the name of the government and paid by the end consumer through increased prices.

When you park your vehicle for work-related purposes, you often have to pay a fee for parking. In some cases, this fee may include additional VAT charges. VAT is a consumption tax imposed when you park your vehicle, considering it a service.

Knowing VAT Application for Parking

Before looking at the actual query, it’s essential to know why resolving the query and knowing whether VAT applies to parking. Generally, the following are the reasons why someone would like to inquire about this.

Claiming Expenses - As an employee, you may have the opportunity to claim certain work-related expenses, such as the cost of parking, as part of your job. These expenses can often be recompensed by your employer.
VAT Reclaim - In some cases, businesses are eligible to reclaim the VAT they have paid on their expenses. This means that your employer may want to know if VAT was included in the parking fee because they may be able to get that VAT amount refunded from the government or tax authorities.

Is There VAT on Car Parking?

There is no yes or no answer to this query. The application of VAT on parking charges relies on many factors, such as

The location of the parking (on-street, off-street, local authority or private car park, NHS Trust car park, etc.),
The motive of the journey (personal, commute, business),
The type of vehicle being parked (personal, commercial, company vehicle).

Therefore, in the following section, I will give you an in-detailed view of all these factors that define whether or not VAT is applied to car parking.

Car Parking Location and VAT Application

In terms of the parking location, the following are the different situations that can impact the VAT application.

On-Street Parking

On-street parking, which is managed by the Local Authority, is governed by specific laws. As a result, VAT does not apply to on-street parking charges.

The local authority has the sole authority to grant permission for parking on public roads. As the designated highway authority, the local authority exercises its powers as defined by the Road Traffic Regulations Act 1984 and the Road Traffic Act 1988.

Consequently, any income generated from parking metres or permits in controlled parking zones is classified as non-business income. This is because there is no competition with the private sector in these cases.

Off-Street Parking

Typically, VAT applies to fees for off-street parking when the entity running the car park is VAT registered.

A ruling by the Court of Appeal in the Isle of Wight Council and Others (2014) UKUT 446 (TCC) case confirmed that off-street parking, including those operated by local authorities, is subject to the standard VAT rate.

To determine whether VAT can be reclaimed for off-street parking, it's important to

Check the parking ticket for a VAT number.
If the company operating the car park has a VAT number listed on the ticket, they are VAT registered.
You have the opportunity to recover VAT at the standard rate for off-street parking expenses.

Country-Park Parking

The application of VAT on parking charges in country parks depends on the ownership and/or operation of the car park.

In most cases, country parks are situated on private land, and the parking arrangements can vary. Some country parks may offer free parking, while others may require the display of a parking disc or payment for parking.

If you have to pay for parking in a country park, similar to off-street parking, it's important to check for a VAT number on the ticket or receipt. This indicates whether the car park operator is registered for VAT.

To avoid any penalties, always make sure to check the signage in the car park for any specific regulations or requirements.

Different Charges & VAT Application

Excess Charges Subject to VAT

If the terms and conditions of a parking facility clearly state that the driver can extend their usage beyond a specified period by making an additional payment, without violating the contract, the payment made for the extension will be considered a fee for the continued use of the facilities and will be subject to VAT.

For instance, let's say there is no charge for the first three hours of parking, but if the driver exceeds that duration, they will be required to pay £70. In this case, the payment of £70 for the extended period would be regarded as a consideration for the ongoing use of the parking facilities and would be subject to VAT.

Excess Charges Not Subject to VAT

Penalty charges that are exempt from VAT are those applied when a driver fails to comply with the terms of the contract established with the car park operator. The following are typical scenarios where a driver may be considered in breach of the contract: