Leeds city council has won a claim of 8.4 million for 34 years worth of VAT it charged on its trade waste collections and passed onto HM Revenue and Customs. The landmark windfall was triggered by HMRCs decision to make council-run trade waste collection services VAT exempt.
In a ruling that could prompt a flood of similar retrospective claims from other local authorities, the council succeeded in claiming back 3.7 million in VAT and 4.7 million in interest in relation to VAT it had charged on its trade waste collections between 1974 and March 2008. The claim was made in March 2009, and succeeded in August 2011.
The success was revealed in a report considered by the councils executive board last week (October 12). The report states: The claim was made on the basis of anomalies between European VAT legislation and the guidance issued by HMRC, and that the collection of trade waste was a non-business.
And, a spokesman for the council confirmed that the claim had been made as a result of HMRCs decision on the VAT treatment of trade waste collection services by local authorities.
However, the council indicated it did not plan to reimburse trade waste customers who had paid VAT because the service had been provided at net cost to the local authority.
Major beneficiary
The ruling makes Leeds the first major beneficiary of a change of HMRC policy which first emerged earlier this year which means that council-run trade waste collections are no longer subject to VAT (see letsrecycle.com story (see letsrecycle.com story).
Under its new position, HMRC agreed that trade waste collections run by councils fall within Article 13 (1) of European Directive 2006/112 more commonly known as the Principal VAT Directive.
This article states that: States, regional and local government authorities and other bodies governed by public law shall not be registered as taxable persons in respect of the activities or transactions in which they engage as public authorities, even when they collect dues, fees or contributions or payments in connection with those activities or transactions.
HMRC stated that the requirement under Section 45(1) of the Environmental Protection Act 1990, which places a duty on waste collection authorities to collect waste from commercial premises if requested by the by the occupier of the premises fell within this article.
This change in policy prompted concern among private waste companies who claimed the change in position could lead to unfair competition by effectively allowing councils to run trade waste collections at a discount (see letsrecycle.com story). It also created the potential for retrospective claims to be made to HMRC by councils for VAT they had paid on trade waste collections in the past.
Confirming this was the basis on which Leeds claim was made, the councils spokesman told letsrecycle.com: The claim was made on the basis that in accordance with Article 13 (1) of EC Directive 2006/112, the collection of trade waste by a local authority is an activity in which they engage as a public authority and where this is the case they are not regarded as taxable persons. HMRC has now agreed that this is the position.
In normal situations, VAT can only be claimed back for a three year period, but the spokesman pointed to examples of case law which had allowed it to make a longer claim. In particular, he cited House of Lords decisions in Michael Fleming (trading as Bodycraft) and Conde Nast Publications Ltd.
Remibursing
On the question of reimbursing customers who had been charged VAT on their trade waste collections, the council spokesman claimed running the service had actually cost the council money. The Council supplied its trade waste services at a net cost to the Council, he said.
He also explained that HMRC had paid the council on the basis of the difference between the price it had charged trade waste customers including VAT and the price it would have charged without VAT.
The claim was based on the VAT that was declared by the Council on the trade waste collection charges using HMRC original guidance, he said. The basis on which the repayment was made by HMRC was by reference to the price which the Council charged and the position which would have applied had HMRC made the decision on the correct VAT treatment earlier.
The councils executive board report reveals that the money reimbursed by HMRC has been earmarked to help the Leeds efforts to mitigate the spending pressures it faces at the moment, and to compensate for the loss of government funding it is dealing with. 3.5 million is being used to help fund early leavers from the councils workforce.
HMRC
A spokesman for HMRC told letsrecycle.com the department was unable to comment on specific cases. He did confirm, however, that local authority trade waste collections are outside the scope of VAT.
He also confirmed that, while the general rule was that claims for over- and under-paid VAT to be limited to three years, claimants could cite specific cases such as Fleming if they wanted to make a claim stretching back longer.
Leeds success could trigger a flood of similar retrospective claims, but the HMRC spokesman was unable to confirm how many, if any, other claims relating to trade waste collections were being dealt with by HMRC.
While the claim relates to a period when the council ran its trade waste collections in-house, the service is now contracted out to Leeds-based waste company AWM, and the council stressed that as such, VAT would be charged on the service now.
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