A simply enough question, that you would hope there would be a simple yes or no answer to sadly, as with many VAT rules, this isn’t the case.
The Answer is both yes and no depending on where you park. For example, off-street parking in a designated car park does normally attract VAT at the standard rate whereas on-street parking operated by a Local Authority is outside the scope of VAT. All you must do is work out which one applies to you.
Off-Street Parking
Firstly, let’s look at off-street parking first, charges. These are normally subject to VAT if the organisation operating the car park is VAT registered.
The best thing to do is check the parking ticket for evidence. If there is a VAT number on the parking ticket the company operating the car park is VAT registered and you can reclaim VAT at the standard rate for off-street parking.
The amount of VAT you pay on parking may not be detailed on the ticket as legally you do not need to provide the breakdown on receipts under the value of £100. That does not mean that there is no VAT to reclaim but you may have to calculate it yourself.
Example
Car park ticket: £7.50
Net of VAT (/1.2): £6.25
VAT: £1.25
Even if the off-street car park is operated by the local authority there will be VAT applied. The reason for this is to avoid unfair competition. It boils down to ensuring a level playing field nationally, between privately owned and council owned car parks.
I would always advocate checking your parking tickets for a VAT number and doing the calculation to claim the VAT where you can. Not claiming VAT back on your business expenses will impact the cash you have in your business and in turn the amount of money you have available to pay yourself. Getting this wrong can add up to a sizeable amount of money across the financial year. So, take that couple of seconds to check receipts and bills for evidence of VAT. This isn’t always easy as there are many exceptions to the rules when it comes to VAT and how it is displayed.
On Street Parking
So, what are the rules for on-street parking? On-street parking is operated by the Local Authority and is considered a public service, because of this, you do not pay VAT on on-street parking charges.
Authorisation for parking on a public highway can only be granted by a local authority. The authority is acting in its capacity as a highway authority using powers provided in the Road Traffic Act 1988 and the Road Traffic Regulations Act 1984.
Therefore, any income from sources such as parking meters, the issue of permits in controlled parking zones and the like is considered as non-business as there is no competition with the private sector.
Is parking VAT exempt or zero-rated or outside the scope of VAT and what difference does it make?
It makes a lot difference, is the very short answer, so let's explore why this is. Although the end result is that there is no VAT to pay there is an important difference between Zero-rated, Exempt VAT and Outside the Scope of VAT.
Zero rated VAT means that goods are still taxable but that currently this is charged at 0% so the VAT charge is £0. These transactions should still be entered on your VAT return.
Exempt VAT is where no VAT at all is applicable on the supply of goods or services, examples of exempt VAT items include insurance, bank charges and postage stamps, again these items should still be entered on the VAT return.
Outside the scope of VAT means that it is neither zero rated or exempt and anything that falls outside the scope should not be entered on the VAT return at all. Items in this category would include salaries and dividends.
On-street parking VAT is outside the scope of VAT as it is not considered a business transaction due to the fact there is no competition with the private sector, which means it should not be entered on a VAT return. It is neither exempt or zero-rated.
If a charge is outside the scope of VAT like on-street parking it does not go on your VAT return, so you need to choose the appropriate VAT rate. In Xero, for example, this would be the ‘No VAT’ tax rate and in Sage it would be ‘T9’.
What about Parking Fines?
So what happens when you return to your car or later get an envelope through the door, and you’ve got a parking fine. Does the VAT on parking charge notices follow the same rules? Well of course this isn't a straight forward yes or no either, as it depends on whether it is truly a fine.
A true fine or penalty is defined as a separate payment from the standard charge for a supply. This type of payment is outside the scope of VAT since no supply has been made.
When a car park operator makes an offer of parking under clear terms and conditions, and sets fines for their breach, the fines constitute penalties for breaching the contract, rather than additional consideration for using the facilities. As such, they are outside the scope of VAT.
Excess charges that are levied where a driver is in breach of the terms of the contract with the car park operator are also outside the scope of VAT. The most common situations where a driver may be in breach of the contract are:
no parking ticket on display
underpayment
overstaying purchased parking time
parking outside marked bays
parking in bays set aside for disabled drivers or parents with children
Some excess charges, however are subject to VAT, where the terms and conditions make it clear that the driver can continue to use the facilities after a set period upon payment of a further amount without being in breach of the contract.
For example, no charge for an initial set number of hours of parking but £100 if that period is exceeded, then the payment will be considered to be for use of the facilities and therefore subject to VAT as normal.
And VAT was supposed to be such a simple tax! It's important to remember there are always exceptions to the rules when it comes to HMRC. It is always worth double-checking to make sure you get it right.
Make sure you keep good records to back up any VAT reclaimed and if you are using Xero upload the receipts and add to the transaction to evidence your VAT claim.
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