UK Upper Tribunal hands down decision on VAT and penalty parking charges – “triangulation” of obligations under a tripartite arrangement

Earlier this month the UK Upper Taxation Tribunal handed down its decision in Vehicle Control Services v The Commissioner for Her Majesty’s Revenue & Customs [2012] UKUT 130. The Upper Tribunal dismissed the taxpayer’s appeal from the Tax Tribunal and found that the penalty parking charges were not damages in trespass and, as there was no contract between the parking operator and the motorist, the penalty charges could not constitute damages for breach of contract.  However, the Upper Tribunal found that the parking charges were received by the taxpayer as consideration for the parking control services provided by the taxpayer to the landowner.

The case provides an interesting analysis of a tripartite arrangement and how, as found by the Upper Tribunal, two sets of obligations are said to be “triangulated” into a single supply.


The facts of the case can be simply stated:

  • The taxpayer entered into contracts with landowners to provide “parking control services” to the landowners.  Under those agreements, the taxpayer’s obligations included erecting warning signs, issuing parking permits for authorised vehicles, inspecting the car parks and taking enforcement measures which included the issue of parking charges, vehicle immobilisation and towing, with consequent fees for release.  The taxpayer was to collect and could retain all parking enforcement charges.
  • In return for the services, the landowner agreed to pay a registration fee (on signing the contract) and an annual fee for each of the warning signs, plus ensure that all vehicles authorised to use the car park clearly displayed the permits on their windscreens
  • The warning signs set out the requirements for valid permits or tickets to be displayed, various other rules and charges that were imposed for failure to comply with the rules – the signs also stated “You are entering into an a contractual agreement.  Do not park in this area unless you fully understand and agree to the above contractual terms”.
  • If a car was parked in contravention to the rules, the taxpayer could issue a “parking charge notice” which was placed on the windscreen of the car.  The notice was enforced by the taxpayer who retained the charges.
  • The issue was whether the taxpayer was required to account for VAT on those charges.

The trespass issue

The First-tier Tribunal concluded that the charges were not damages for trespass because the taxpayers had not been given the right to occupy the land.  Rather, the taxpayer had been given a licence to enter the land for the purposes of the agreement but had not been given any rights of possession.  Accordingly, the taxpayer could not bring an action for trespass as principal but could only do so as agent for the client.  The Upper Tribunal agreed.

The contract issue

The First-tier Tribunal found that the arrangements constituted a contract between the taxpayer and the motorise, but that the parking charges were not damages for breach of contract, but rather were paid as a condition of the contract and therefore constituted consideration for a supply of services.

On appeal, the taxpayer contended that the Tribunal was correct to find that there was a contract wt, but that it should have found that the charges were outside the scope of VAT as they were either a penalty or damages.

Interestingly, both parties agreed that, if there had been a contract between the taxpayer and the motorist, the parking charges would not have been payment for a supply made under the contract – reference was made to a decision of the VAT Tribunal, Bristol City Council (No 17665, 15 May 2002) in which, on the facts of that case, a contract between the Council and motorists entering a Pay and Display car park had been held to have been created, but that the excess charges were not consideration for the supply of parking services under that contract – the excess charges did not arise until the right to park had been lost.  One can see similarities with that approach in the judgment of Emmett J in American Express International Inc v Commissioner of Taxation [2009] FCA 683  (at [52]-[58]) where his Honour found that “late payment fees” on credit cards were not “in connection with” the provision, acquisition or disposition of the credit – but were payable by reason of a novas actus interveniens, namely the card holder’s breach of the credit card terms and conditions.

The Upper Tribunal disagreed with the First-tier Tribunal and found that there was no contract between the taxpayer and the motorist.  This was because the taxpayer was not in a position, by virtue of its limited licence and notwithstanding the words in the warning statements about the motorists entering into a contractual agreement, to make any offer of a right to a park.  Accordingly, the penalty charges could not constitute damages for breach of such contract.

The Upper Tribunal then found that the only relevant contract was between the taxpayer and the landowner, and, in finding that the parking charges were consideration to the taxpayer for providing parking control services to the landowner, the Upper Tribunal said as follows:

…there are two sets of obligations that are being “triangulated”.  The first set of obligations is between the client (acting through its agent, VCS) and the motorist, and the second is between VCS and the client.

The legal analysis is that VCS collects the various parking charges as agent for the client, which represents damages for trespass, or for breach of a contract between the landowner and the motorist.  Such payments are outside the scope of VAT.

By allowing VCS to collect and retain the charges, the client was giving consideration, or further consideration, to VCS for its parking control services under the contract.  That was consideration for the standard-rated supply by VCS to the client.

As far as I am aware, the concept of “triangulation” of obligations is yet to find its way into the Australian GST system.  A search of austlii and the ATO legal database registered no hits.

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