UK VAT Tribunal finds VAT payable on passenger “levy” imposed by airport operator

In Norwich Airport Ltd v Revenue & Customs [2012] UKFTT 277 the Tribunal found that VAT was payable by an airport operator in respect of a levy imposed on departing passengers.  The purpose of the levy was to raise funds to enable the airport operator to carry out improvements and enhancements to its infrastructure and passenger facilities at the airport. While the Tribunal found that there was not a relevant nexus between the levy and the improvement works, there was a relevant nexus between the levy and the ability to pass through the gates (permitting access) and to proceed through the security check and thereafter be in a position to take the flight. As permitting access to land is a supply, that supply was subject to VAT.

The case provides an analysis of the “nexus” rules in the UK, which require a “direct” nexus between supply and consideration.  In finding that there was not a sufficient nexus between the levy and the improvements to the airport, the Tribunal stated:

There was no direct link because the benefit of the improvement words would be for airlines and passengers generally and the payment of the levy by each individual passenger had no direct relationship to the level of benefit, if any, he might receive.  A person could pay the levy and never use the airport again and therefore entirely fail to benefit from any of the improvements. As a matter of English law, there was not even a contract for the improvement works because the explanation of what the ADF would be used for was no more than a statement of intent by NAL and far to vague to amount to an enforceable contract with the passengers paying the ADF.

The above statement has some similarities to the Commissioner’s approach  to Funding Arrangements in GSTR 2011/D4, where the existence of a “sufficient connection” between the payment and some action to be taken by the recipient would appear to depend on whether the recipient enters into an obligation to take that action (see example 3 at paras 28-30).

The case also provides an illustration of how Courts look at the actual legal relationship between the parties, rather than the labels put on transactions.  The airport operator argued that the payment was a fund raising levy, equivalent to the imposition of a levy by a statutory body. The Tribunal noted that the airport operator did not have any statutory revenue raising powers and posed the question “So why did passengers pay the levy?”.  In answering that question, the Tribunal found that the passengers did not pay a levy, they bought a ticket which entitled them to pass through the automatic gates and ultimately on their journey.

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