From April 2020 all 206 hospital Trusts in England will be expected to provide free car parking to groups that may be frequent hospital visitors, or those disproportionately impacted by daily or hourly charges for parking, including:
• Blue badge holders
• Frequent outpatients who have to attend regular appointments to manage long-term conditions
Free parking will also be offered at specific times of day to certain groups, including:
• Parents of sick children staying in hospital overnight
• Staff working night shifts
To date, most NHS car parks in England have been used to generate income by the NHS bodies that operate them and this income has been subject to VAT. There have been very few exceptions allowing for free parking. With the changes coming in from April 2020 NHS car parks shall become a mix of fee paying business use subject to VAT and free non-business use. Accordingly when considering VAT on expenditure in relation to car parks, Trusts need to determine if the expenditure relates wholly to taxable business use (e.g. the purchase of a new pay machine) or non-business use (e.g. designated areas for free parking users only).
VAT incurred on wholly business use expenditure shall be recoverable in full as business input tax and VAT on wholly non-business use expenditure shall be determined for recovery under the contracted out services rules (“COS”).
Where the expenditure does not fall wholly as taxable business use or wholly as non-business use and is not recoverable under the COS rules the VAT will be considered as an overhead, to which the amount of deductible VAT by the NHS body shall need to be determined under the Trust’s annual business activities and partial exemption calculation.
The capital goods scheme
The capital goods scheme (“CGS”) is applied to recognise the change in use of certain items of capital expenditure over a number years as there may be variations to the extent that the items are used to make taxable supplies. For construction works costing over £250,000 (excluding VAT) the CGS adjustment period is 10 years.
As the adjustment period is 10 years capital expenditure incurred on car parks completed before 31st March 2010 can be excluded from the change, as the 10 year adjustment period would have passed by the time the new car parking charges have effect.
For capital expenditure on NHS car parks in England falling within the CGS rules, the change of use in car parks from wholly taxable business to partially non-business will trigger CGS adjustments.
For example, suppose a new car park was completed in the 2018/19 financial year for a cost of £1m plus £200k VAT which would have been claimed in full. For the 2019/20 financial year there would be no adjustment as the car park remained wholly taxable business use, but from April 2020 the car park was used consistently for free parking 10% of the time the NHS body would have to repay £2k of the VAT claimed each year over the next 8 years.
In order to determine if your Trust will be impacted by the change in parking charges through the Capital Goods Scheme you should consider:
1. If you have had capital expenditure in relation to car parks costing more than £250k in the last 10 years.
2. Will those who are entitled to free parking use this car park?
3. How will the Trust implement the new car parking charges rules? E.g. dedicated areas or will they park in the same locations?
4. Has the Trust carried out a review to estimate what percentage of car parking use shall be free from April 2020?
If you believe that these changes could affect your Trust, please contact us.