Granting facilities for parking a vehicle is standard rated, because Item 1(h) of Group 1, Schedule 9 to the VAT Act 1994 takes it out of the property exemption. Parking is exempt only when it goes with an exempt letting of a home or of commercial premises it is linked to, and it can be zero rated with the sale of a new home. A letting of open ground that is not designed for parking and makes no specific reference to parking is an ordinary exempt letting, unless the owner has opted to tax.

Why is parking taxed when most rent is exempt?

Group 1 exempts the grant of an interest in, right over or licence to occupy property, but lists exceptions, and Item 1(h) is “the grant of facilities for parking a vehicle”. HMRC’s VATLP15100 explains that parking facilities are facilities designed for, or provided specifically for, parking vehicles, and that the grant includes letting, leasing or licensing them. The European Court in Henriksen held that this covers closed garages too, but that a garage letting closely linked to an exempt letting of property used for another purpose, such as a home, stays exempt.

Design counts as much as use. In Trinity Factoring Services the Court of Session held that a lock up garage let in unqualified terms is a grant of parking facilities even if the tenant uses it for storage. Notice 742 paragraph 4.2 therefore says a garage or designated bay is standard rated even when not used for a vehicle, unless the lease or licence specifically prohibits parking.

What does HMRC treat as standard rated parking?

Notice 742 paragraph 4.2 gives examples:

  • letting or licensing a garage or designated parking bay or space;
  • a right to park in a car park or commercial garage, including trailers;
  • letting ground specifically to build a garage or solely to park a vehicle;
  • letting a purpose built car park, including to a car park operator;
  • letting a taxi rank, bicycle storage, or storage or parking for touring caravans;
  • a freehold sale of a new or partly completed garage or car park, other than with a new dwelling.

VATLP15200 adds that ground let for use as a car park, for example to a car park operator or a local authority, is always standard rated.

When is it an exempt letting rather than parking?

Paragraph 4.3 lists lettings that remain exempt, subject to the option to tax: buildings or ground (not garages or designed bays) where the contract makes no specific reference to parking; lettings where any reference to parking is incidental to the main use; lettings to a motor dealer to store stock, or to a vehicle transporter, distributor or auctioneer for their business; lettings for a market or car boot sale, including on ground used at other times as a car park; lettings for vehicle exhibitions; lettings to a travelling fair or circus; and the freehold sale of a garage or car park more than three years old.

How is parking with a home treated?

Paragraph 4.4.4 exempts garages and spaces let with homes for permanent residential use, such as under an assured shorthold tenancy, if the space is reasonably near the dwelling and the tenant takes both from the same landlord. This works even where an existing tenant takes a garage later under a separate agreement, as long as periodic rent is still payable on the home. It also applies to shared ownership, while rent is paid on the unowned share.

The position changes where the occupier owns the home. Paragraph 4.4.3 says that where a freehold has been bought and a parking licence is granted later under a separate agreement, the parking is standard rated, because there is no periodic supply of accommodation to attach it to. A leaseholder who paid a premium and later rents a space is normally standard rated too, unless the original purchase agreement provided for parking, the fee is periodic and payable to the same landlord, and the space is reasonably close and intended for use with the home.

On a zero rated sale or long lease of a new dwelling, paragraph 4.4.1 allows a garage or space sold to the buyer to be zero rated if it is reasonably close and intended to be used with the home, to the extent of the premium or first rent. Parking with holiday accommodation is normally standard rated (see holiday accommodation).

How is parking with commercial premises treated?

Paragraph 4.5 treats parking granted under the same agreement as a lease of commercial premises as part of a single supply if the spaces are within or on the premises, reasonably close, or within the same complex (such as a shared estate car park), and are intended to be used with the premises. The parking then takes the liability of the rent: exempt if the rent is exempt, standard rated if the landlord has opted to tax (see the option to tax). Varying the number of spaces each year does not normally break the link. Spaces granted separately, without that connection, are a standard rated supply. The wider rules are in VAT on commercial property.

How do public car parks and parking charges work?

HMRC’s VATGPB8640 says on street parking controlled by a local authority under road traffic legislation is non business, so meter and permit income is outside the scope of VAT. Off street parking is standard rated even when a local authority provides it, following the Isle of Wight Council litigation. Some country park parking charged under byelaws made under section 35 of the Road Traffic Regulation Act 1984 is outside the scope, but other country park parking is standard rated. Following National Car Parks v HMRC, VAT is due on the whole amount a driver pays, including any overpayment above the tariff.

VATSC06140 deals with charges for breaking the rules. A charge for breach of the parking contract, such as no ticket, overstaying, parking outside a bay or in a disabled bay, is a penalty and outside the scope of VAT, whether kept by the owner or by an enforcement contractor. But where the terms allow the driver to stay longer on paying a higher amount without breaching the contract, that amount is further consideration for parking and is standard rated. This distinction is similar to the one in compensation and termination fees.

How does this work in practice?

Illustration only. A landlord owns a small office building with eight marked bays behind it. Unit A is let with four bays under one lease, and the landlord has not opted to tax, so the rent and the bays are exempt. Two bays are licensed to a neighbouring business at £100 a month each. These are standard rated: at 20%, if VAT was not added, each £100 contains £16.67 of VAT. The last two bays are let to a resident in a nearby flat that the landlord does not own, which is also standard rated. If the landlord is not VAT registered, the bay income counts towards taxable turnover for the registration threshold, while the exempt office rent does not.

What are the common mistakes?

  • Treating a garage as exempt because it is used for storage. Unless the agreement prohibits parking, it is still a parking facility.
  • Exempting spaces let to people who own their homes. Without periodic rent on the home from the same landlord, the space is standard rated.
  • Splitting commercial parking into a separate licence. A separate agreement with no link to the premises makes the parking standard rated even if the office rent is exempt.
  • Charging VAT on genuine penalty notices. Contractual penalties are outside the scope; extended stay tariffs are not.
  • Forgetting the input tax effect. Mixed exempt rents and taxable parking may make a landlord partly exempt; see partial exemption.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.