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HMRC internal manual

VAT Government and Public Bodies

Other local authority activities: miscellaneous (A to E): congestion charging schemes

Local authorities may impose congestion charges to reduce traffic in city centres. Drivers who enter the zone have to pay a charge.

Charges generated from schemes operated by local authorities, or other public authorities, under public statute are outside the scope of VAT as the operation of a congestion charge zone is part of the local authority’s non business activity. However, if the scheme is run by a private operator it represents a business activity and so the charges are subject to VAT.

Some local authorities operating a congestion charging scheme may use an outside contractor to actually manage it. The contractor’s services are supplied to the local authority and they are standard rated. The local authority can recover the VAT charged under section 33 (see VATGPB4000).