When it comes to vehicle parking, VAT may not be the first thing that comes to mind — yet it plays a crucial role for both businesses and individuals. Whether you operate a car park, rent out parking spaces, or simply claim parking expenses, understanding VAT on car parking is essential for compliance and cost efficiency.

At Right Choice Consulting, our tax experts specialise in clarifying complex VAT rules. This detailed guide explains how VAT applies to parking, who should charge it, and how businesses can reclaim it correctly.

What Is VAT on Car Parking?

VAT (Value Added Tax) is charged on most goods and services supplied in the UK. When it comes to parking, VAT rules depend on:

  • Where the parking occurs (on-street or off-street),

  • Who provides the parking (local authority or private operator), and

  • How the charge is classified (supply of parking or statutory fee).

If you operate a private car park, offer paid parking at your business premises, or manage off-street spaces, you’ll most likely need to charge VAT at the standard rate of 20%.

For professional help managing VAT obligations, explore our VAT Services in London.

On-Street vs Off-Street Parking: Key Differences

On-Street Parking

On-street parking usually refers to bays or meters provided by local authorities. These services are considered part of the authority’s statutory duties, not a business activity. Therefore, such parking is outside the scope of VAT — no VAT is charged, and none can be reclaimed.

Off-Street Parking

Off-street parking includes spaces in car parks, garages, or other private facilities. Since this involves a commercial transaction, VAT is chargeable at 20%.
For example:
If a car park charges £10 for an hour’s stay, this amount includes £1.67 VAT. The operator keeps £8.33 as revenue and pays £1.67 to HMRC.

If your company provides or manages parking for clients, our Accounting Services team can help you correctly record and report VAT on these transactions.

When VAT Does Not Apply to Parking

VAT doesn’t apply in every case. Some parking activities are exempt or outside scope, such as:

  • On-street parking managed by local councils.

  • Penalty charges or fines for overstaying time limits — these are not considered payment for a supply.

  • Free parking — where no fee is charged, there’s no taxable supply.

  • Certain public service or charitable facilities, if not operated commercially.

If you’re unsure which category your parking activity falls under, speak to our experts via Contact Us.

VAT Rate and Threshold for Parking Operators

The standard VAT rate in the UK is 20%. Any private operator or business supplying off-street parking must register for VAT if their taxable turnover exceeds £90,000 per year (current HMRC threshold as of 2025).

Once registered, you must:

  • Charge VAT at 20% on parking fees.

  • Issue VAT invoices showing the net, VAT, and total amounts.

  • Submit VAT returns and pay the tax due to HMRC quarterly or annually.

If you’re unsure about registration, our team at Right Choice Consulting can assess your turnover and help you stay compliant with VAT registration requirements.

Reclaiming VAT on Parking for Business Use

Businesses often incur parking expenses during travel or client meetings. The ability to reclaim VAT on parking depends on two key factors:

  1. VAT must have been charged — off-street parking is VATable, on-street is not.

  2. The expense must be for business purposes.

Example:
A VAT-registered consultant pays £15 to park in a private car park while attending a client meeting. Since the operator charged VAT, the consultant can reclaim £2.50 as input tax.

However, if parking is used personally or not directly related to business, the VAT cannot be reclaimed. For more help managing such expenses, visit our Bookkeeping Services page.

Common Scenarios and Their VAT Treatment

Scenario VAT Treatment
Private off-street car park Standard-rated (20%)
On-street parking by council Outside the scope of VAT
Penalty charges or fines Outside the scope of VAT
Free parking No supply, no VAT
Leasing of parking spaces May be exempt as property letting
Hotel or business package with parking included Parking follows the VAT treatment of main service

If you manage or rent spaces and want clarity, our VAT specialists can help interpret complex scenarios accurately.

Special Considerations for Businesses and Landlords

Parking Provided to Employees

If you offer parking to employees, VAT treatment depends on whether it’s a business expense or a benefit in kind. Typically, VAT on the cost of employee parking can be reclaimed if it’s necessary for business operations.

Leasing or Renting Parking Spaces

Letting or leasing a parking space can sometimes be exempt from VAT if it falls under property letting rules rather than commercial supply. However, most short-term or public parking leases remain standard-rated.

Our Company Formation and VAT teams work together to ensure that newly formed businesses apply the correct VAT treatment from day one.

Avoiding VAT Mistakes on Parking

VAT errors are common in the parking industry — and costly to fix. Here are some frequent mistakes to avoid:

  1. Assuming all parking is VAT-free. Only on-street parking is outside VAT.

  2. Charging VAT on penalties or fines. These are not taxable supplies.

  3. Failing to register for VAT once turnover exceeds £90,000.

  4. Incorrectly reclaiming VAT on personal or mixed-use parking.

  5. Misclassifying a parking lease as a service rather than property letting.

For ongoing compliance, consider a consultation with our Tax Specialists to review your VAT processes.

How Right Choice Consulting Helps with VAT on Parking

At Right Choice Consulting, we provide a complete range of VAT and accounting solutions for businesses across the UK. Our services include:

  • VAT Registration & Compliance — Ensuring your car park or parking facility is VAT-registered correctly.

  • Bookkeeping & Record Keeping — Managing VAT invoices and reconciliation for parking income and expenses.

  • Tax Planning — Helping businesses structure parking and property income efficiently.

  • HMRC Liaison — Managing VAT returns, audits, and any queries from HMRC.

You can explore more about our Accounting Services or request a personalised consultation through our Instant Quote.

Example: VAT Breakdown for Car Park Operators

Let’s illustrate how VAT works in practice:

Scenario:
A VAT-registered parking operator charges £5 per hour.

  • Net price: £4.17

  • VAT (20%): £0.83

  • Total charged: £5.00

For every £5 collected, £0.83 must be paid to HMRC as output VAT.
If the operator incurs business expenses (e.g., maintenance, ticket machines, or cleaning) that include VAT, they can reclaim that input VAT to reduce their liability.

Key Takeaways

  • Off-street parking is subject to VAT at 20%.

  • On-street parking by councils is outside the scope of VAT.

  • Penalty fees and fines are non-taxable.

  • Free parking has no VAT implications.

  • Businesses can reclaim VAT on valid parking expenses.

  • Operators must register if their taxable turnover exceeds £90,000.

If your business provides or uses parking services, proper VAT handling can prevent costly mistakes and improve cash flow.

Final Thoughts

Understanding VAT on car parking can save your business time, money, and stress. At Right Choice Consulting, our goal is to simplify VAT compliance for companies of all sizes. Whether you operate a parking facility, lease spaces, or simply pay for parking as part of daily operations, we can help you:

  • Identify VAT-able and non-VAT-able activities.

  • Maximise VAT reclaims.

  • Ensure compliance with current HMRC rules.

To discuss how VAT rules affect your parking business, contact our experts today or get an instant quote for tailored VAT support.