VBNB72500 - Legal history: cases about non-taxed transactions and apportionment

Vehicle Control Services [2016]

Please note that the following material is not a full summary of the case - it merely highlights the principle referred to in the appropriate section of this manual.

Vehicle Control Services [2016]

Vehicle Control Services (VCS) is a car park operator, which managed and operated car parking on private land. Its clients were the owners of the car parks, which VCS operated for them under contract.

In practice, most of VCS’s revenue was derived not from parking permits, but from penalty charge notices (“PCNs”) which it issued to motorists who were in breach of the rules for parking in the clients’ car parks. In the tax year 2012/13 , 92% of VCS’s income came from PCNs, and just 8% from parking permits.

In the earlier Vehicle Control Services [2013] case, the Court of Appeal had ruled that the PCN income was not subject to VAT. This was because the income was not consideration for a supply received by the motorist, the PCN income instead represented damages for breach of parking rules.

VCS argued that the requirement for apportionment of input VAT applied only to exempt input tax and not to VAT related to the PCN charge. They also argued that all of their VAT costs related to ‘business’ and that income from the PCNs was ‘business income’ even though it was outside the scope of VAT. All the VAT incurred was input tax and fully recoverable because they made no exempt supplies.

The court rejected that argument and ruled that an apportionment was required because some of the VAT related to outside the scope PCN charges. To that extent, it was not input tax under the provisions of S24(5) VATA 1994. VAT is only deductible if the input transaction relates to a taxable output.