Northumbria Healthcare NHS Foundation Trust v The Commissioners for His Majesty’s Revenue and Customs

A public body acts as a public authority for the purposes of Value Added Tax Act 1994 section 41A and Article 13(1) of the Principal VAT Directive only where the specific activity is carried out under a special legal regime. The activity must involve, or be closely linked to, the exercise of public rights and powers. General statutory powers, ordinary public-law duties, and a general duty to follow guidance do not suffice.

For the competition condition, differential VAT treatment of similar activities may distort competition, but the issue remains one of fact assessed by reference to the activity and economic circumstances. Actual or real potential competition is sufficient. A public body’s ability to offer lower prices or retain a greater profit may produce a non-negligible distortion.

The Trust supplied paid parking at hospital and healthcare sites. HMRC determined that those supplies were subject to VAT and refused repayment of VAT accounted for in the periods 05/13 to 03/16.

The First-tier Tribunal dismissed the Trust’s appeal: [2021] UKFTT 71 (TC). It held that the Trust did not supply parking under a special legal regime and that, in any event, non-taxation would significantly distort competition.

On appeal, the Trust pursued only the public-authority issue under Article 13(1) of the Principal VAT Directive and section 41A of the Value Added Tax Act 1994. The questions were whether NHS parking guidance created a special legal regime and, if so, whether non-taxation would lead to a significant distortion of competition.

1. Appeal dismissed. The First-tier Tribunal made no error of law in holding that the Trust did not provide parking as a public authority. It was therefore a taxable person when making those supplies.

2. Article 13(1) is a derogation from the general VAT rule and is to be interpreted strictly. Whether an activity is undertaken under a special legal regime depends on how that specific activity is carried out. The activity must involve, or be closely linked to, public rights and powers. A public body’s general statutory powers or general public-law obligations do not establish that connection.

3. The NHS and Department of Health parking guidance did not create a special legal regime. A general public-law duty to have regard to, and ordinarily follow, guidance did not impose a legal condition specific to the provision of parking. Treating that general duty as sufficient would deprive the Article 13(1) requirement of meaningful effect.

4. The Trust could not introduce, after the hearing, a new case based on statutory constraints under other enactments. The argument had not been advanced before the First-tier Tribunal, was unsupported by evidence about its practical effect on the Trust’s parking decisions, and would have been unfair to HMRC.

5. The Tribunal also held, as an alternative basis, that Ground 2 would fail. The question is whether different VAT treatment would cause a significant distortion of actual or real potential competition, assessed by reference to the activity and economic circumstances rather than a particular local market. There is no irrebuttable legal presumption, but similar supplies receiving different VAT treatment will generally distort competition as a matter of fact. The First-tier Tribunal was entitled to find actual competition and a non-negligible distortion because non-taxation would permit cheaper parking or a greater profit than competing private operators could obtain.

• Upper Tribunal (Tax and Chancery Chamber): Dismissed the Trust’s appeal against the First-tier Tribunal’s decision.
• First-tier Tribunal (Tax Chamber): Dismissed the Trust’s appeal against HMRC’s VAT determination: [2021] UKFTT 71 (TC).