VAT victory for Somerset Waste Partnership

The Somerset Waste Partnership has won a VAT victory which it says could save it hundreds of thousands of pound a year and potentially benefit other waste partnerships.

Set up in 2007 (see letsrecycle.com story), the Partnership manages waste on behalf of Mendip, Sedgemoor, South Somerset and West Somerset district councils, Taunton Deane borough council and Somerset county council.

The victory concerns complex Value Added Tax (VAT) rules introduced in 2010 concerning how Somerset county council, on behalf of the district councils, pays contractor May Gurney to carry out Somerset Waste Partnership kerbside collections. This then affects a financial threshold for how much VAT the district councils can reclaim from HMRC.

Collection

Previously, the districts had paid VAT for the collection service as if they were paying May Gurney directly, and then recovered it from HMRC.

However, HMRC decided that the responsibilities for waste collection had effectively transferred to the county council and this then meant that waste collections could not be included when the district councils calculated their total VAT bill.

This has become a problem as it affects the ratio between the total VAT bill and VAT paid for exempt services such as leisure and cremation, which means that the VAT paid for exempt services is equivalent to a higher percentage of the whole. As councils cannot recover tax on exempt services if this amounts to more than 5% of total VAT spend, there is a risk of them incurring tax on all these exempt activities.

The Partnership feared that the change could cost district councils up to 300,000-a-year, with South Somerset council predicting that it alone could lose almost 100,000.

Lobbying

A year of lobbying and letters to Prime Minister David Cameron, Chancellor George Osborne, environment and local government ministers, local MPs, and HM Revenue and Customs (HMRC), by the Partnership has now resulted in an apparent policy shift.

The Partnership had been seeking to see common sense applied to a situation where services are paid for via one partner on behalf of another. It did explore alternative options such as fragmenting the joint contract but concluded that this would be cumbersome and bureaucratic when it has gained efficiencies through joint working.

SWPs governing Somerset Waste Board was told of the VAT victory when Treasury Minister David Gauke wrote to Taunton MP Jeremy Browne on June 25 to set out the change.

Thanking the Board for taking the trouble to make us aware of these concerns, Mr Gauke wrote that the campaign prompted HMRC to reconsider the tax consequences of the inter-authority agreement the district and borough councils should not now suffer a VAT disadvantage.

Savings

Somerset Waste Board chairman, Councillor Derek Yeomans, said that there had been some highly detailed letters sent as part of the tax campaign, adding: I am sure other authorities are watching, as the tax success could mean similar savings for councils in waste partnerships across the UK.

He added: For district councils and all Somerset council tax payers, this is an excellent decision; I am so pleased we were able to get the government to see the cogent point of our argument.

The SWP is now waiting to hear from HMRC on how it intends to honour Mr Gaukes commitment.

HMRC

A spokesman for HMRC told letsrecycle.com that it could not comment on affairs relating to individual businesses due to confidentiality but added: Normally where there is a joint contract with a single contractor, each business is only entitled to recover the VAT on its own share of the total cost paid to the contractor.

The victory in Somerset is seen as important as it could benefit existing waste partnerships, such as the Dorset Waste Partnership which is rolling out a single waste collection service later this year (see letsrecycle.com story) , as well as the many councils which are interested in forming partnerships in a bid to make efficiencies and save money. This is something the government has been actively promoting.