Northumbria Healthcare NHS Trust (‘Northumbria’) v HMRC [2024] EWCA Civ 177

Following the release of the Court of Appeal judgment mentioned above, HMRC have been granted permission to appeal to the Supreme Court (recently published on the Supreme Court website), we have taken the opportunity to share our thoughts on the Court of Appeal judgment that will be under consideration by the Supreme Court.

?Taxpayer win: Court of Appeal

?The Court of Appeal’s (CA) judgment in Northumbria Healthcare NHS Foundation Trust (Appellant/the Trust) was handed down on 27 February 2024 in which the Court allowed the Trust’s appeal and decided to go on to remake the decision of the First-tier Tribunal (FTT) to effectively determine that the VAT that it overpaid on car parking charges should be repaid to the Trust.

The case, which arose from a claim for overpaid VAT, was concerned with whether hospital car parking should be treated as outside the scope of VAT in accordance with Article 13(1) of the Principal VAT Directive, as implemented by Section 41A of the Value Added Tax Act (VATA1994).

?Article 13(1)/ Section 41A provides that where a public body makes a supply in its role as a “public authority” that supply of goods or services shall not treated as a taxable supply, unless, the non-taxation of that supply would lead to “significant distortions of competition”. As a result, when determining whether a public body was/is acting in its role as a “public authority”, the courts are often required to consider whether the public body was/is making that supply pursuant to a “special legal regime” (SLR).

?In respect of the Trust’s supplies, the FTT had previously concluded that the parking provided by the Trust was not provided pursuant to a SLR. The FTT partly relied, in coming to that conclusion, on the fact that the Trust provided parking in accordance with guidance in the form of ‘Parking Principles’ which was insufficient in the FTT’s view to amount to an SLR. The FTT also concluded that non-taxation would in any case lead to significant distortions of competition based on evidence that car parking provided by the Trust did compete with alternative parking facilities.

?In allowing the appeal, the CA accepted that the guidance provided in the 2015 Parking Principles could be relied on as forming part of an SLR. The CA found support for that conclusion in other decisions in which it was accepted that guidance, combined with a duty to adhere to it in the absence of good reason, may amount to a form of law (R v Ashworth Hospital Authority, ex p Munjaz [2005] UKHL 58, [2006] 2 AC; R v Hemmati and others v Secretary of State for the Home Department [2019] UKSC 56, [2021] AC 143).

?The CA also disagreed with the FTT’s approach on competition, recognising that it was for HMRC to establish on the balance of probabilities that there would be significant distortion of competition. The Court of Appeal felt able to dismiss that part of the case on the basis HMRC had not provided evidence to prove such distortion. The CA also found support for a conclusion that distortion would not occur from the fact that hospital car parks have little capacity, which the CA found to indicate that users are not materially influenced by pricing considerations.

Now that HMRC have been granted permission to appeal we consider that any decision by the Supreme Court in due course will give rise to an important point of principle as to whether guidance can amount to an SLR, how the burden of proof operates in establishing distortion of competition and how the FTT and other appellate courts and Tribunals should assess the risks to distortion of competition, including whether that assessment should consider the likely impact that non-taxation would have on outsourcing.

?For further details, please contact KPMG Law’s Tax Disputes team:

?Colette van Zyl, Partner, [email protected], Adam Rycroft, Senior Manager, [email protected],? Chelsea Jones, Senior Manager, [email protected], Vanessa Gibson, Assistant Manager, [email protected], Hannah Johnson, Assistant Manager, [email protected].

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