In Isle of Wight Council and Others v HMRC [2014] UKUT 446 (TCC) the Upper Tribunal held that the First-tier Tribunal had been entitled to find that local authorities were not entitled to recover VAT included in supplies of off-street carparking pursuant to the Road Traffic Regulation Act 1984, Sections 32, 35 and 122. Non- taxation would lead to the risk of significant distortions of competition in the off-street car parking market and the provision of outsourcing. Local authorities were not entitled to be treated as a non-taxable person.
Proudman J accepted (para 54) that “the RTRA as a whole is not a revenue-raising measure”; that, although the cases of Cran, Djanogly and Attfield relate to on-street parking, they were applicable in that respect to off-street parking; that it is legitimate for a local authority to structure its car parking prices so as to discourage parking in some places and encourage it in others; that it is likewise legitimate to use surplus revenue generated from some car parks to make up a shortfall in revenue from car parks which, whether for policy reasons or otherwise, are run at a loss, or where parking is free of charge; and that there is no requirement that income and expenditure be balanced on a car park by car park basis.
Proudman J said that it must follow, if the RTRA is not a fiscal measure, that “overall, and perhaps taking one year with another”, the cost to the local authority of meeting its statutory obligation of providing sufficient off-street parking and the revenue generated from the activity must be “broadly equal”. The “deliberate making” of a profit would take the activity into the realm of “trading”.