GLASGOW could be set to receive more than #32m from the Government after a tribunal ruled Customs and Excise should refund VAT overpaid by the city council during the past 10 years.
In a move which could have significant implications for the VAT treatment of activities carried out by all Scottish local authorities, the tribunal in Edinburgh ruled Customs and Excise had been wrong to require the council to pay VAT on repair works and that it should refund the authority any amount it has overpaid.
The decision could also be good news for some property owners.
Earlier this year the council announced it would have to implement budget cuts of #32m, a council tax increase of 9.37%, and 850 job losses.
Customs and Excise has until mid-June to decide whether to appeal against the ruling at the Court of Session.
If it decides not to appeal, the council's tax advisers, Ernst & Young, will ask for full repayment of #22m it claims has been overpaid since 1988, plus interest of about #10m.
The decision was welcomed by Glasgow City Council's deputy leader, Councillor Charles Gordon, although he urged caution. ''If it happens, it will clearly be welcomed and would be a bit of good news for the city, but I am cautious because I don't know if all the procedures have been exhausted.
''Customs and Excise can appeal, so I don't think we will be tapping any money on the strength of it just yet.''
In allowing the council's claim for a refund of VAT overpaid, the tribunal came to the conclusion that:
q Default works were not supplies for a consideration, because the owners had no control over the nature of the works to be carried out, nor the ''price'' that they were required to pay.
q The council was acting as a public authority rather than a taxable person pursuing a business activity.
q Customs and Excise had failed to implement European legislation that could have allowed it to refuse the claim on the basis of distortion of competition. In this case, the onus was on Customs and Excise to prove this distortion and it did not.
Councils are empowered under the Housing (Scotland) Act 1987 to issue statutory repair notices to the owners of buildings which are in a state of disrepair and, if the owner fails to comply with the notice, the council can carry out the works and bill the owner for part or all of the costs.
The council was ordered by Customs and Excise in April 1988 to charge VAT on such work but, advised by Ernst & Young, appealed on the grounds that, because it provided grant-funding of up to 90% for the default works, it was effectively paying most of the VAT liability from its already overstretched repair budgets.
However, Customs and Excise said the ruling was correct, and the council took it to the VAT tribunal earlier this month.
Mr Tony Jaras, senior VAT manager for Ernst & Young, said: ''I think it is a great result for the city of Glasgow given the financial strictures over recent years, and it possibly also has major implications for other authorities who might be overpaying VAT on this and other kinds of activities that they carry out.''
Mr Jaras added that, although the council paid up to 90% of the VAT, it has a record of all the individual property owners who have overpaid over the years and would be looking to refund them.
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