In a case heard by the European Court of Justice concerning the VAT treatment of parking penalty notices, it was concluded that these payments constitute consideration for a supply and are therefore subject to VAT, contradicting HMRC’s current guidance on this matter.

The Appellant in this matter, Apcoa Parking Danmark, operates car parks on private land and was appealing a ruling from the Supreme Court of Denmark, who determined that fees charged to motorists who failed to comply with the general terms and conditions of the car park were VATable.

The VAT liability of parking fees did not form part of this case, however the treatment of ‘control fees’ issued to those who failed to comply with the terms and conditions of the car parks, which represented around a third of the businesses turnover, were disputed. The appellant argued that these fees constituted a financial penalty that were not consideration for a supply and as such they should be outside the scope of VAT. However, the ECJ determined that as there was a legal relationship between the Appellant and the motorists who utilised the parking service, they therefore agreed to the obligations set out in the terms and conditions, including the payment of control fees. Furthermore, there was a direct link between the control fees and the parking service and a correlation between the value of control fee levied and the amount due for the services provided by Apcoa. Consequently, these payments were consideration for a supply and therefore VATable.

This is one of a number of rulings relating to the payment of compensation/penalties whereby the ECJ has adjudged these fees to be consideration for a supply and therefore subject to VAT. This contrasts with HMRC’s guidance on this matter, which considers such payments outside the scope of VAT.

If you require further clarification in relation to this case and what impact it may have on your business, please contact one of our expert consultants through our free VAT helpline.

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