Scott Harwood

Written by:

Scott Harwood

Partner, Head of Public Sector VAT

Free hospital car parking could produce massive VAT bills for NHS trusts

The government recently announced many NHS patients and visitors in England will be able to access free NHS hospital car parking from April this year. To many this is great news, but the changes may have unintended tax consequences for embattled NHS Trusts with implications for frontline services.

Maintaining car parking facilities cost English NHS hospitals a surprising £71m last year. It is well known that many seek to recover these costs by levying charges on service users. It’s also true that most hospitals seek to make a surplus for reinvestment into frontline services or to periodically upgrade their facilities. 

Up until now, where the NHS charges for parking they have been entitled to reclaim their VAT costs on the simple premise that they offer taxable parking services just like commercial car park operators. So what happens to their VAT recovery when the Government’s free parking initiative takes effect?

To briefly cover the basic concepts of the Capital Goods Scheme (CGS), VAT is recovered on qualifying land and property expenditure if those facilities are used for a taxable purpose. If the facilities are put to any non-taxable use during a subsequent 10-year period, each year the taxpayer must make a proportional repayment of the VAT originally claimed back to HMRC. This provision simply ensures taxpayers do not claim large amounts of VAT on the basis of only a single year’s use.

Applying the CGS in an example, suppose an NHS Trust spent £5m upgrading their parking facilities in 2018 with £1m of VAT claimed. If those facilities are used to offer free parking from 2020, over the remaining 8-year term the Trust must repay a total of £800,000 to HMRC (£1m / 10 x 8).

Unfortunately, the NHS works on annual budgets and our example NHS Trust may struggle to find the funds to repay HMRC. The Trust’s original business plan certainly wouldn’t have envisaged the Government direction being passed down to them at the time.

In general, the CGS is an effective mechanism allowing organisations to adjust their VAT recovery on expensive capital assets should their plans change. Even when a taxpayer is obliged to change their plans, as is the case here, a clawback is still required. 

It seems many NHS Trusts could face a triple financial whammy as a result of the changes being pushed through; the loss of a valuable income stream, new investment costs to control free-to-use parking sites and now, potentially, large VAT repayments.

This seems manifestly unfair. RSM approached HMRC to enquire if HMRC will seek to enforce the repayments on the NHS or allow a concession given the circumstances. Avoiding the question, an HMRC spokesperson said:

HMRC cannot comment on any arrangements in place with individual taxpayers”

If HMRC do not back down, a simple resolution could be for the Government to compensate NHS Trusts for any necessary investment plus any VAT repayments owing to HMRC. Whilst the subject is fresh, NHS Trusts need to make their voice heard on this matter otherwise they could be facing hefty tax bills.

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