Dumfries and Galloway Council set for unexpected cash injection from the tax man

dailyrecord.co.uk:

Dumfries and Galloway Council is to receive an unexpected cash injection from the tax man. Changes to taxation rules around leisure services will result in the local authority hanging onto nearly £250,000 that would ordinarily be paid to HMRC.

Council finance chiefs have revealed that VAT which was usually paid on leisure services income will now be retained. Paul Garrett, the council’s head of finance and procurement, has produced a report for the council’s finance committee next week which explains the changes to earnings.

He wrote: “HMRC have recently indicated that a change in VAT treatment means that local authority leisure services will now be treated as a non-business activity for VAT purposes and therefore not subject to VAT. “The impact of this is that the council will be able to retain more leisure and sport services income – as VAT will no longer need to be paid to HMRC.” Mr Garrett’s report added: “This change in VAT treatment has now been implemented and, based on current income levels, it is estimated that this change in VAT treatment will increase the level of income retained by the council by around £247,000 per annum.” In providing leisure services to the public, local authorities have historically been treated as operating a business activity by HMRC, rather than statutory public interest activities for the community.

As such, HMRC applied VAT to income earned from leisure and sport facilities, such as DG One in Dumfries. However, several councils including Dumfries and Galloway challenged this treatment.