Are PPC's evading paying VAT on collection costs resulting in lost £'000's to HMRC?

ihatetrump

I recently had the misfortune to contest and lose a PCN hearing that cost me close to £270. Although I've now paid the full award against me, I've been subsequently trying to flush out how (and if) the PPC & their legal representative have accounted for VAT.

To be clear, and this has been determined by a VAT tribunal, standard parking charges are subject to VAT, but the exorbitant penalties assessed for breach of parking terms & conditions are an exempt supply and therefore no VAT is payable by the PPC. However debt collection costs are subject to VAT and as such should be accounted for and paid over to HMRC.

My PCN cost me £100 + court filing costs plus £60 in additional PPC costs and £50 in (fake add-on) Legal Representative's costs, both of which are subject to VAT.

I have requested and been denied copies of VAT invoices and was met the following reply:

Our client will not be issuing you a VAT invoice due to the HMRC Internal Manual “VAT Supply and Consideration” at VATSC05840 which states:
 “Where a car park operator makes an offer of parking under clear terms and conditions, setting punitive fines for their breach, the fines constitute penalties for breaching the contract, rather than additional consideration for using the facilities. Consequently, they are outside the scope of VAT.”

I do not know the financial arrangements between the PPC & their legal reps, but irrespective, both are VAT registered and should be accounting for VAT on their share of the £110 that they have collected (fleeced) and been paid . 

I very strongly suspect that the PPC is linking their £60 add-on of costs to the punitive penalties and not paying over VAT to HMRC (tax evasion). As the legal representative has also evaded my request for a VAT invoice, I suspect that they also are not accounting for VAT and are pocketing the whole cost VAT free.

If most PPC's are treating these costs and fake add-on costs as part of the 'penalty', then the PPC community as a whole is evading paying to HMRC what could be hundreds of thousands of pounds (if not more) of VAT. HMRC enquiries and enforcement can be particularly painful and onerous when they find wrongdoing or evasion - which would be another nail in the coffin for some of the less than honest PPC's  

Before I proceed with an HMRC Whistleblowing complaint, does anyone have knowledge or a view on this subject?

patient_dream

Well, I think it was VCS who were taken to court by HMRC and HMRC lost. That was a few years ago but life has changed and as they offer a service, VAT should be applicable.

The downside is they would add it to the parking charge
The upside is they could face years of back tax

The Treasury certainly needs a wind fall right now

hullensien

“Our client will not be issuing you a VAT invoice due to the HMRC Internal Manual “VAT Supply and Consideration” at VATSC05840 which states:
 “Where a car park operator makes an offer of parking under clear terms and conditions, setting punitive fines for their breach, the fines constitute penalties for breaching the contract, rather than additional consideration for using the facilities. Consequently, they are outside the scope of VAT.”

are they allowed to use the words “fines” and “penalties”

ihatetrump

patient_dream said:

Well, I think it was VCS who were taken to court by HMRC and HMRC lost. That was a few years ago but life has changed and as they offer a service, VAT should be applicable.

The downside is they would add it to the parking charge
The upside is they could face years of back tax

The Treasury certainly needs a wind fall right now

That's the VAT tribunal case I'm referring to and yes VAT does not apply to the penalty, but it does (and should) apply to the collection costs, which are a service, (poor though they may be and robo in nature).

In terms of adding it back-on, as debt collection charges appear to be outlawed in the new COP, then it can only apply to legal reps costs (or am I wrong).

Yes, Rishi needs a few quid/roubles/rands/dollars or anything he can get his hands on at the moment.

Jenni_D

From your OP ... the £60 was the fake add-on; the £50 was solicitor costs for the claim process and allowable. So the judgment amount should have been ~£210 not £270.  

JustLooking90

@ihatetrump sorry to hear you lost your case. Out of interest, does this go on your credit file for 6 years, or is that only if you hadn't paid the money after losing? Also, where was your case heard?

ihatetrump

Jenni_D said:

From your OP ... the £60 was the fake add-on; the £50 was solicitor costs for the claim process and allowable. So the judgment amount should have been ~£210 not £270.  

Thanks @J@Jenni_D - a further £52 in court fees + interest @ 8% (who earns interest at 8% these days?!!) came to£268 and small change.

Le_Kirk

JustLooking90 said:

@ihatetrump sorry to hear you lost your case. Out of interest, does this go on your credit file for 6 years, or is that only if you hadn't paid the money after losing? Also, where was your case heard?

This is correct.

Castle

ihatetrump said:

I do not know the financial arrangements between the PPC & their legal reps, but irrespective, both are VAT registered and should be accounting for VAT on their share of the £110 that they have collected (fleeced) and been paid . 

I very strongly suspect that the PPC is linking their £60 add-on of costs to the punitive penalties and not paying over VAT to HMRC (tax evasion). As the legal representative has also evaded my request for a VAT invoice, I suspect that they also are not accounting for VAT and are pocketing the whole cost VAT free.

If most PPC's are treating these costs and fake add-on costs as part of the 'penalty', then the PPC community as a whole is evading paying to HMRC what could be hundreds of thousands of pounds (if not more) of VAT. HMRC enquiries and enforcement can be particularly painful and onerous when they find wrongdoing or evasion - which would be another nail in the coffin for some of the less than honest PPC's  

Before I proceed with an HMRC Whistleblowing complaint, does anyone have knowledge or a view on this subject?

You may want to have a read of the follow up court case involving HM Customs and VCS, which essentially meant that whilst income from "fines" and "penalties" were exempt from VAT; VCS couldn't recover any VAT, (they had to disallow 92%), that it had paid out, which would of course cover the VAT that they have been charged on debt collection fees and Solicitors fees:-
https://forums.moneysavingexpert.com/discussion/5768837/vcs-vs-hm-revenue-the-sequel

(I.M.O-they don't charge VAT on the debt collection/legal fees but they can't claim it back when they are invoiced by their Legal reps).

ihatetrump

You may want to have a read of the follow up court case involving HM Customs and VCS, which essentially meant that whilst income from "fines" and "penalties" were exempt from VAT; VCS couldn't recover any VAT, (they had to disallow 92%), that it had paid out, which would of course cover the VAT that they have been charged on debt collection fees and Solicitors fees:-
https://forums.moneysavingexpert.com/discussion/5768837/vcs-vs-hm-revenue-the-sequel

Thanks @Castle - I think (strongly suspect) that you may be an accountant - tell me if I'm wrong!.

Yes I had seen the follow-up case and it's very interesting. Unfortunately that post from 4 years ago didn't get as much traction as it deserved - it has the potential to be HUGE and could be the final nail in the coffin for a lot of PPC's - if only HMRC would follow through.

What many people don't realise (and I suspect HMRC themselves) is how many car park management agreements are structured with the PPC's. It is highly likely (almost a certainty) that the majority of PPC's derive the overwhelming proportion of their income on managed car parks from PCN's, with the landowner receiving genuine car parking fees - this is certainly the case with the hearing I lost - the PPC got 100% of PCN's, The landowner got 100% of the parking charges.

What the VCS ruling meant was as you rightly state, 92% of their Input VAT (the VAT they pay on goods, services and equipment they supply) cannot be reclaimed from HMRC - in other words, becomes a cost to their business. 

If this ruling was applied across the board to PPC's that derive most if not all of their income from PCN's then the costs to their businesses would be huge. Most of the VAT they had paid on things like ANPR equipment, signage, car park works by contractors, even agency labour would be disallowed and they could then potentially face huge HMRC VAT recovery repayments.

Please, please HMRC, sit up and take notice and start going after these cowboys.

bargepole

ihatetrump said:

Please, please HMRC, sit up and take notice and start going after these cowboys.

You may be waiting for some time.

I happen to know of a business operation, not far from me, where the foreign owner employs illegal immigrants, pays them below minimum wage with cash in brown envelopes, and supplies them with fake passports for a fee.

All of this has been reported to HMRC, and the Border Agency, a couple of years ago. Action taken so far? None.