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VAT on Car Parking | Can You Reclaim Parking VAT?

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Is your micro-entity having trouble understanding VAT on car parking? This can become a major issue for micro entities, especially when expenses include staff parking, client visits, or airport travel.  Many business owners have different questions, like, is there VAT on parking fines, and do you pay VAT on parking? Since the answer is not always straightforward, the VAT treatment depends on whether the parking is on-street or off-street. Understanding whether car parking is vatable or not is necessary for accurate bookkeeping and VAT reporting.  In this article, we will discuss in detail VAT on car parking, how much VAT applies, whether it can be reclaimed, and other aspects.

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What is VAT in the UK?

VAT (Value Added Tax) is a tax charged on the sale of goods and services at each stage of the supply chain. It involves the whole process, from production to the point of sale.

Is There VAT on Car Parking?

In the UK, VAT generally applies at the standard rate of 20% to most off-street, private, and commercial car parks. While on-street parking provided by local authorities is typically outside the scope for VAT, penalty charges are generally non-taxable.

VAT on Off-Street Parking

Private car parks, as well as multi-storey parking facilities and designated parking spaces located outside public roads, fall under the category of off-street parking. Private companies, along with local councils, manage most off-street parking facilities.
  • Customers must pay 20% VAT when they use off-street parking.
  • Car parks situated at shopping centres and airports, as well as railway stations, together with commercial parking lots, fall under this category.
  • Off-street car parks managed by local councils must impose VAT at the standard 20% rate on their parking fees.

Example:

You must pay £5 per hour when parking in private facilities since VAT is already included in the pricing. The actual breakdown would be:
  • Net cost: £4.17
  • VAT (20%): £0.83
  • Total cost: £5.00

VAT on On-Street Parking

The on-street parking system that operates under local authorities enables drivers to park on public roads by making payments through meters and mobile applications.
  • Local authorities do not need to apply VAT to parking fees that occur on public streets.
  • Local councils do not need to charge VAT on on-street parking fees because their parking management activities fall under regulatory purposes instead of constituting business operations.
  • The same rule regarding VAT applies to both controlled parking zones (CPZs) that local councils oversee.

Example:

When you pay £3 for on-street parking, you do not contribute to the Value Added Tax (VAT), as local authorities currently have VAT exemptions for these parking fees.

Is there VAT on Parking Fines?

Since there is VAT on car parking charges, no VAT is applied to parking fines. This is because true parking fines, penalties, or Penalty Charge Notices (PCNs) are generally outside the scope of VAT.
  • HMRC treats fines as punitive or disciplinary charges rather than a payment for a “supply” of parking services.
  • If the payment is for continued use of the parking space, it is standard-rated (20%). If it is a punitive charge for breaching terms, it falls outside the scope of VAT.

VAT on Parking in Country Parks

Country parks and nature reserves managed by public or private entities follow separate rules regarding VAT treatment of their parking fees.
  • Country parks operated under local authority management do not require VAT on their parking fees.
  • A parking facility operated by a private company must follow VAT rules at the rate of 20%.

Does VAT Apply to Airport Parking?

As the VAT on car parking applies at the standard rate of 20%, it also applies to almost all commercial airport parking fees. These include long-stay, short-stay, and valet parking services.

  • Standard 20% VAT

Airport parking is treated as a “supply of services” made in the course of business, and is subject to the standard 20% VAT rate.

  • Off-Site/Pre-Booked

Even if you book through a third-party site, VAT is included in the fee. Long-term off-site parking with “courtesy” buses is treated as a single, standard-rated supply.

  • Connected Transport

If the airport operator also provides transport between the car park and the terminal, the entire service is standard-rated.

  • Reclaiming VAT

Businesses can reclaim VAT on staff or client parking expenses, provided they have a valid VAT invoice.

Can I Reclaim VAT on Car Parking?

Yes, you can generally reclaim VAT on car parking in the UK. This can be done only if the business is VAT-registered, the parking is for business purposes, and the VAT was charged by the provider. Here are the situations where you can actually reclaim VAT on car parking.

  • Off-Street Parking

Car parks managed by private companies or local councils (multi-storeys, shopping centres, train stations, airports) are usually subject to 20% standard rate VAT.

  • Business Purpose

The parking must be incurred “wholly and exclusively” for business purposes, such as visiting a client, attending a meeting, or parking a company vehicle.

  • Employee Parking

If an employer pays for employee parking while they are on business travel, then the VAT can be reclaimed.

Is Parking VAT Exempt or Zero-Rated?

As mentioned above, VAT on car parking is standard-rated (20% VAT) and not exempt or zero-rated when provided by VAT-registered businesses. These include private car parks, multi-storey facilities, shopping centres, and airports.

What are the Penalty Charge Notices for VAT on Car Parking?

Penalty Charge Notices (PCNS) are typically treated as non-taxable, punitive charges that fall outside the scope of VAT.

  • Private Land

PCNs are civil contracts, often limited to £100 unless higher losses are proven.

  • Local Authority

These are statutory fines, usually not applicable for VAT.

  • Non-Taxable

As penalties, they do not have VAT added, meaning they cannot be reclaimed as input tax.

What are the Drawbacks of VAT on Car Parking?

As VAT on car parking is standard-rated, its primary drawback is increased costs for motorists and businesses. Here are some major drawbacks of VAT on car parking.

  • Higher Costs

Parking fees increase by 20% for consumers, such as commuters and shoppers.

  • Reduced Competitiveness

Taxing public parking, like that of the NHS and local councils, decreases the ability to offer lower-cost services, potentially creating major distortions.

  • Administrative Issues

Businesses must navigate complex rules for reclaiming VAT. Valid VAT invoices are needed for parking exceeding £25.

  • Potential Double Taxation

Public bodies may be required to charge VAT on services that were previouslyoutside the VAT system.

Get Clarity on VAT and Business Expenses

Confused whether to claim VAT on car parking, or how to treat parking charges in your micro entity accounts? Then, professional guidance can save you time and prevent costly mistakes. Our professional micro entity accountants help micro businesses handle VAT correctly, ensuring compliance and maximising all allowable claims. Get in touch today for simple, practical support designed for micro-entities.

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From Paperwork to Peace of Mind – Trust Micro Entity Accounts.

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The Bottom Line

VAT on car parking generally applies to most off-street parking, which includes private car parks and airport parking. This means businesses may be able to claim VAT on parking where only valid invoices are provided. VAT does not apply to on-street parking, parking fines, or PCNs.  By understanding whether car parking is taxable or not, micro entities can avoid errors, overclaims or missed VAT recovery in their accounts. You can find additional information about VAT rules and their business implications through the selection of these informative articles: The content provided on Micro-Entity Accounts, including our blog and articles, is for general informational purposes only and does not constitute financial, accounting, or legal advice.
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Joe Smith

Joe Smith is a seasoned accounting professional with over a decade of specialised experience in UK Micro-Entity Accounts. Throughout his 10+ year career, he has focused on helping small business owners navigate the complexities of FRS 105 and statutory filing requirements. Joe is an expert in streamlining the preparation of abridged accounts for Companies House and ensuring full compliance with HMRC regulations. His deep understanding of the micro-entity regime allows him to help small enterprises minimise their disclosure requirements while maintaining financial accuracy and transparency.