National Car Parks Limited (“NCP”) have had their appeal dismissed in the recent Court of Appeal decision (National Car Parks Ltd v Revenue And Customs  EWCA Civ 854)
NCP operates “pay and display” car parks in which customers purchase a ticket by using the ticket machines, which take cash but do not provide change. A tariff board or boards will stipulate the amounts needed to pay to park for varying lengths of time. There were no barriers at the car parks and transaction could be cancelled at any time by the customer by pressing a red button.
Claim to HMRC
NCP pursued a repayment from HMRC in respect of the VAT paid on the “overpayments” (payments above the required amount). HMRC rejected the claim on the basis that the overpayments were “consideration” and taxable as such.
Appeals to the First Tier Tribunal (“FTT”) and Upper Tribunal (“UT”)
NCP made subsequent appeals to the FTT and UT on the grounds that the overpayments were ex gratia payments and outside the scope of VAT. The FTT rejected NCP’s appeal and the UT agreed with the FTT’s decision.
Appeal to Court of Appeal
The following hypothetical example was presented to the Court of Appeal:
"A customer enters an NCP pay and display car park wishing to park for one hour. She parks her car in an available space and locates the pay and display ticket machine.
The prices stated on the tariff board next to the pay and display ticket machine are:
- Parking for up to one hour - £1.40.
- Parking for up to three hours - £2.10.
The pay and display ticket machine states that change is not given but overpayments are accepted and that coins of a value less than 5 pence are not accepted.
The customer finds that she only has change of a pound coin and a fifty pence piece and puts these into the pay and display ticket machine. The machine meter records the coins as they are fed into the machine, starting with the pound coin.
When the fifty pence piece has been inserted and accepted by the machine, the machine flashes up 'press green button for ticket' which the customer does. The amount paid is printed on her ticket, as is the expiry time of one hour later. The customer displays the ticket in her car and leaves the car park."
NCPs representative appealed on the basis that:
- A payment by a customer to a supplier will represent “consideration” only if and to the extent that there is a direct link to the supply.
- In the hypothetical example, an hour’s parking would have been granted regardless of whether the customer had paid the extra 10p.
- The overpayment was voluntary and not included in the consideration for the supply.
- The contractual obligation of the customer for an hour’s parking was only £1.40.
The Court of Appeal dismissed NCP’s appeal.
In arriving at his decision, Lord Justice Newey considered the Council Directive 2006/112/EC.
Article 2(1)(c) of which considers “the supply of services for consideration within the territory of a Member State by a taxable person acting as such” as a transaction subject to VAT. Article 73 states, “"the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party…".
The Court of Appeal agreed with the judgment of Apple and Pear Development Council v Commissioners of Customs and Excise ( EUECJ R-102/86), that article 2(1) presupposed the existence of a direct link between the service provided and the consideration received.
LJ Newey adopted an objective approach to determine that the contract came into existence when the ‘green button was pressed’. The pressing of the green button representing acceptance by the customer of an offer by NCP to provide a specified time of parking in return for the coins that had been inserted into the machine.
The Court of Appeal’s analysis varied from the UT’s as it concluded that the NCP’s offer was specific to granting a length of time of parking for the coins shown by the machine as having been inserted when the green light flashes.
LJ Newey agreed with the UT in considering that the amount paid by the customer is the value given by the customer and received by the supplier in return for the services.
The Court of Appeal’s judgment reinforces the FTT and UT’s views on the meaning of consideration for the VAT purposes. NCP had hoped that the decision in King's Lynn and West Norfolk BC v Revenue and Customs Commissioners ( UKFTT 671 (TC)) would allow them to claim that overpayments were not consideration. The UT had previously commented that King’s Lynn had been wrongly decided, however, the Court of Appeal did not comment on its correctness or relevance after not hearing any arguments on its implications. Companies will have to be mindful of the amount of consideration they are receiving for goods or services and how much of it is taxable.
The impact of the decision could yet be felt far beyond the boundaries of VAT overpayment claims, with the question coming down ultimately to the timing of the formation of the contract. It would be interesting to see a Court’s interpretation of the same issue if it was focussed on the question of the incorporation of terms and formation of contract by a user of a car park, as opposed to the question of input VAT on overpayments. Arguably both approaches come down to the same point, but it doesn’t appear that any such arguments were before the Court of Appeal on this occasion.
It remains to be seen whether NCP intends to appeal the decision up to the Supreme Court.