Leeds City Council is celebrating an £8 million VAT windfall – and has already earmarked half the cash to help pay off some of the 3,000 staff it is planning to make redundant.
The authority has managed to claw back more than 30 years’ worth of tax paid out wrongly to customs on trade waste disposed of in the city.
The rebate relates to anomalies between European VAT legislation and guidance issued by Her Majesty’s Revenue and Customs department between 1974 and 2008.
Following the successful claim by council accountants, HMRC has agreed to pay £3.7 million plus interest of £4.7 million, a total of £8.4 million.
And £3.5 million of that is now being set aside for an “early leavers” fund for council staff redundancy costs.
Around 3,000 council jobs will be cut over the next five years under plans unveiled by Leeds City Council last year to make £90 million of savings ordered by central Government, to meet major cuts in the budgets of the council.
Council leader Keith Wakefield said at the time that “painful decisions” had to be made.
Under the plans the council will reduce the number of senior managers by a quarter, slash administration costs and reduce the cost of its buildings.
Earlier this year the authority wrote to thousands of staff seeking volunteers for redundancy or early retirement to avoid compulsory redundancies.
Senior councillors were told at a meeting of the executive board this week: “The Council has recently been successful in a VAT claim to HMRC on the fees charged for the collection of trade waste.
“A claim was submitted in March 2009 relating to the period from 1974 to March 2008.
“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, rather than a taxable business activity.
“Given the need to reduce the workforce further it is proposed to use £3.5 million of this sum to enhance the early leavers earmarked reserve, created to meet the one-off severance costs of the scheme.”
A meeting this week was told “other conversations” were also going on with regard to further possible VAT claims, but although the “one-off” windfalls were welcome, they did not solve the “underlying” financial problems of the city.