In Vehicle Control Services Limited v HMRC [2016] UKUT 0316 (TCC) the Upper Tribunal (UT) has held that input VAT on overheads has to be apportioned where a business makes both taxable and outside of scope supplies.

  • The taxpayer operates private car parks.
  • Around 92% of its revenue comes from parking charging notices (PCNs) issued to motorists who break the rules, with the remaining 8% from the supply of parking permits.
  • In 2013 the Court of Appeal found that PCN revenue was not subject to VAT as it represented damages for breach of contract / trespass.
  • The taxpayer accepted that VAT on supplies purchased exclusively for generating PCN revenue was not recoverable, but claimed they were entitled to recover input tax on 100% of the general overheads of the business.
  • HMRC countered that only 8% of the input tax on overheads could be recovered (being the % of turnover which was taxable).
The First Tier Tribunal found in favour of HMRC, and the UT has now upheld their decision, finding that:
  • Where the VAT Directive states that input tax may be deducted ‘in so far as’ goods or services are used for taxable transactions this should be interpreted as meaning ‘to the extent that’. 
  • This is supported by the extensive European and domestic case law,
  • Accordingly, where purchased goods or services are used by a taxable person  for both taxable and non-taxable supplies (whether exempt or outside of scope) input VAT may only be recovered to the extent it is attributable to the taxable supplies.

The taxpayer’s appeal was therefore dismissed.


Case reference: Vehicle Control Services Limited v HMRC [2016] UKUT 0316 (TCC)