Northumbria Healthcare NHS Foundation Trust v The Commissioners for HMRC

For VAT purposes, a public-law body acts as a public authority when the activity is carried on under a special legal regime, rather than under the same legal conditions as private operators. The regime must have a real, operative legal effect; a mere statutory power or general public-law framework is insufficient. Guidance may qualify when combined with an enforceable duty to follow it unless there is good reason to depart. The distortion-of-competition exception requires an evidence-based assessment of the counterfactual of non-taxation. It concerns the activity as such, actual or potential competition that is real, and distortions more than negligible. Participation in a market, or competition alone, does not establish the exception. Hospital car parking was supplied as a public authority and VAT was not chargeable.

The Trust operated car parks at hospitals and other healthcare facilities and sought repayment of VAT accounted for on parking charges. The First-tier Tribunal dismissed its appeal: [2021] UKFTT 71 (TC). The Upper Tribunal dismissed a further appeal: [2022] UKUT 00267 (TCC).

The Court of Appeal considered whether the Trust supplied parking as a public authority under Article 13(1) of the Principal VAT Directive, implemented by section 41A of the Value Added Tax Act 1994, and whether non-taxation would lead to significant distortions of competition.

The appeal was allowed on all three grounds. Lady Justice Falk gave the judgment, with Lord Justice Green and Lady Justice Asplin agreeing. The Tribunal decisions were set aside and the Trust’s claim for repayment of VAT was allowed.

1. Special legal regime. The sole test under Article 13(1) was whether the activity was carried on under a special legal regime applicable to the public body, rather than under the same legal conditions as private operators. The references in the CJEU authorities to activities closely linked to public powers described the usual context of the derogation. They did not establish an alternative test to that stated in Carpaneto 1 ([1991] STC 205). Public powers could satisfy the test, but were not the only means of doing so.
2. The relevant legal conditions had to have a real, operative impact on the lawful conduct of the activity. A mere statutory framework, a different source of enabling powers, or a possibility that legal conditions might affect the activity was insufficient.
3. The 2015 Parking Principles, combined with the Trust’s public-law duty to follow them unless there was good reason to depart, imposed material constraints on access, charges, concessions and additional charges. Their use of the word should did not prevent them having legal effect or undermine legal certainty. The statutory framework, including sections 1, 2 and 43(3) of the National Health Service Act 2006, reinforced that conclusion.
4. Competition distortion. HMRC bore the burden of proving, on the balance of probabilities, that non-taxation would cause significant distortions of competition. The assessment had to concern the activity as such, not a particular local market, and required an economic assessment of the counterfactual. Actual and potential competition were relevant only where private entry was real rather than hypothetical. A distortion had to be more than negligible.
5. The FTT had applied an impermissible presumption. Its findings concerning participation in the market, local airport parking and the possibility of lower prices did not establish that non-taxation itself would disadvantage private operators. Retention of additional receipts for healthcare, without evidence of market impact, was not enough. The necessary economic findings were absent.

1. Court of Appeal (Civil Division): appeal allowed; the Tribunal decisions were set aside and the Trust’s VAT repayment claim was allowed: [2024] EWCA Civ 177.
2. Upper Tribunal (Tax and Chancery Chamber): appeal dismissed: [2022] UKUT 00267 (TCC).
3. First-tier Tribunal (Tax Chamber): appeal dismissed: [2021] UKFTT 71 (TC).