HMRC wins landmark case on taxation of Local Authority services

16 Oct 2012

The First Tier Tribunal has just given judgment in the important and long-running litigation between local authorities and the HMRC over the question of whether the latter was correct in deciding that the treatment of local authorities as non-taxable persons when providing services that are otherwise taxable would lead, as a real possibility, to actual or potential distortions of competition (on a more than negligible scale) with private operators supplying the exact same services for the purposes of Article 4.5(2) of the Sixth VAT Directive (now Article 13 of Directive 2006/112/EC).

In its judgment, the Tribunal has found that the non-application of VAT to Local Authority provision of off-street parking would distort competition and the degree of distortion would be more than negligible. This litigation is regarded as a test-case and although car-parking was the subject considered by the Tribunal, the same principles must be applied to the provision of any service or supply provided by a local authority where there are private operators providing the same service in the same market. Local authorities had collectively brought very significant Fleming claims which, pursuant to the Tribunal’s Judgment, HMRC will not be required to refund.

Christopher Vajda QC, Ben Rayment and Brendan McGurk successfully acted for HMRC.

Nicholas Paines QC was a member of the Tribunal.

Click to read the judgment in Isle of Wight v HMRC