VAT and parking : all you need to know
The majority of businesses, from sole traders through to multi-national companies, will incur parking fees at some point. Whether visiting a client, collecting supplies, prospecting, working off-site or attending various external events, free car parking is not always available.
Depending on the scenario, value-added tax (VAT) may be added to the price of parking the vehicle. Knowing how and when to reclaim VAT on parking is extremely complex but can be worth investigating and including in your VAT return. Find out more about best practices regarding parking expenses and reclaiming VAT with Mooncard.
VAT and business expenses
The implications of VAT regulations on such things as corporate hospitality, gifts and staff entertaining are complex. Similarly, complex rules also govern the treatment of VAT on other business expenses, including parking.
The vast majority of businesses regularly incur expenses due to employees travelling and working away from the main place of work. These expenses include transport, accommodation, fuel, mileage, road tolls, food and drink as well as the purchase of other goods and services. When employees use a company vehicle or their own car, they are also likely to incur parking costs.
When these expenses are “wholly and exclusively” for the purposes of the business and assuming the business is VAT-registered, these expenses can be included in your quarterly VAT return and reclaimed from HMRC.
However, as is the case with other taxable expenses, there are grey areas. For example, most forms of public transport (trains, buses, underground) are zero-rated for VAT. That means that you cannot reclaim VAT on the price of these tickets.
The supply of car parking is another of these grey areas.
VAT and car parking
Can the VAT on car parking charges be recovered? Unfortunately, the only real answer to that question is “it depends”!
Whether or not VAT can be reclaimed on parking charges depends on a number of factors, including where the vehicle is parked (on-street, off-street, local authority-run car park, privately-run car park, NHS Trust-run car park, etc), the purpose of the journey (business, commute, personal), and the type of vehicle being parked (company car, commercial vehicle, personal vehicle).
According to UK road traffic regulations, permission to park on a public highway can only be granted by a local authority. Any income generated from allowing people to park their vehicles on the public highway (such as income from parking meters, on-street parking permits, etc.) is not, therefore, a business activity, as there is no competition with companies in the private sector.
As a result, on-street parking falls outside the scope of VAT regulations, and the cost of parking on the street is exempt from VAT. There is, therefore, no possibility of reclaiming the VAT on on-street parking charges.
Off-street parking is a different matter. Off-street parking facilities may be operated either by a local authority (in which case, road traffic laws apply) or by a private company (in which case, contract law applies). This can have implications when it comes to the types of penalties that can be applied for violating the applicable laws.
However, when it comes to reclaiming the VAT on off-street parking, case law has determined that the standard VAT rate of 20% applies, even when the off-street facility is operated by a local authority.
When employees park in off-street parking facilities operated by a VAT-registered entity, and this parking is essential for their business activities, the VAT incurred can be reclaimed. To do so, a VAT receipt must be kept, specifying the amount of the VAT on the parking charge.
To cut a long story short, if the parking ticket has a VAT number on it, you can usually include the expense in your VAT return and reclaim the VAT.
VAT and parking fines
Unfortunately, parking fines and penalties can arise due to poor planning, meetings going over time, and other unforeseeable events. Excess charges may be due to failure to display a valid ticket, underpaying, overstaying, returning to the car park within a limited period of time, parking outside the marked bays, or parking in spaces intended for people with disabilities or children.
While the issue of VAT on the costs of parking itself is fairly clear, whether or not VAT applies to parking fines is more complex.
The first difficulty arises with the definition of the terms “fines” and “penalties”. Under UK law, fines and penalties are not tax-deductible expenses. However, excess parking charges, although they may be presented as a fine or penalty, may not necessarily fall within this legal definition.
Whether or not VAT is added will depend on the body issuing the excess charge. If the fine is from a local authority, then no VAT is added, and therefore cannot be included in your VAT return. However, if the issuing authority is a VAT-registered company, they may charge VAT. Whether or not they do so depends on how the excess charge is presented in the terms and conditions of the parking facility. If overstaying is presented as not permitted and giving rise to a penalty, then the fine is not subject to VAT. If, however, overstaying is presented as resulting in an additional charge for parking, even if this is at a much higher rate than the original stay, then standard VAT is payable and can be reclaimed.
The devil is in the detail, as they say!
As always, keeping meticulous records for tax purposes is essential. Understanding the ins and outs of VAT and parking is only part of the battle. Employees often lose parking receipts and unforeseen events may lead to unplanned parking costs and even fines. Using a Mooncard fuel card is one way of keeping track of the VAT. Find out more about how Mooncard can help streamline your VAT returns by booking a free demonstration today!