Issue - meetings

The Director of Finance and Section 151 Officer presented a report on the subject of the updated VAT recovery position.

Members were advised that, following the implementation of a new financial system in 2021, a number of issues had arisen, compounded by staff turnover and weaknesses in processes at that time. As a result, VAT returns had not been submitted to HMRC for the period April 2021 to October 2024 and HMRC had therefore been holding funds due to be returned to the Council. A chronology of events had been provided within the report.

It was reported that, once the issue had been identified, it had been agreed with HMRC that Error Correction Notices (ECNs) would be submitted in order to recover the funds. An initial sum of £472,000 had been received in December 2024, which was subsequently reversed through the ECN process. Further work had been undertaken to review the ‘General Ledger’ and identify additional amounts where VAT had not been appropriately accounted for. A final ECN, submitted on 12th June 2026, totalled £1.79 million, resulting in a net position of approximately £1.76 million due to Bromsgrove District Council from HMRC.

Members were advised that this recovery would have a positive impact on the Council’s cash position. It was noted that the accounting for each of the affected years had already been reflected in the Council’s accounts and therefore no additional reserves would be created. However, the improved cash position would reduce the need for borrowing and provide increased opportunities for investment. Confirmation from HMRC in relation to the final ECN was yet to be received.

In considering the report, Members had detailed discussion and commented on the following points:

·       Reference was made to Redditch Borough Council’s position, where a significantly larger sum had been identified. Officers explained that this reflected structural differences between the authorities, including Redditch’s larger budget, larger capital programme and the operation of a Housing Revenue Account, which all led to a higher volume of transactions and associated VAT. It was further noted that Bromsgrove was responsible for billing Redditch for a higher proportion of Shared Services provided between the authorities.

·       Members queried the accuracy of the figure for Bromsgrove. Officers advised that, whilst the amount had been calculated based on the information available, it could not be formally confirmed until HMRC had completed its review.

·       Concerns were raised regarding previous estimates that had suggested a significantly higher figure. It was noted that the situation was very complex and figures were continually changing until the claim had been submitted to HMRC.

·       Discussion took place regarding the VAT treatment of shared services between Bromsgrove and Redditch. Officers explained that as a result of the arrangements i.e. Bromsgrove billing Redditch, the VAT position was offset in Bromsgrove but increased in Redditch. Bromsgrove was not charged VAT on the underlying costs e.g. salaries, but Redditch was charged VAT on the same services as they were purchasing a vatable service from Bromsgrove. This led to a higher recovery of  ...  view the full minutes text for item 11