Thursday, 26 May 2011

Cllr Cornelius and tax implications of Barnet's latest scheme

This week Barnet Council approved the establishment of a new organisation, a Local Authority Trading Company (LATC) to provide Adult Social Services in Barnet. This trading company will also take in Barnet Homes as a subsidiary.

The council believe that there will be significant financial benefits to this strategy although the details of the business case are hidden away in an exempt report. What really caught my eye was the Barnet Times report of the meeting where it noted:

"Councillor Richard Cornelius urged officers to keep looking at the tax implications of setting up such a body and asked them to continue to take advice to protect the council."

Now this is very interesting because setting up an LATC actually raises a number of tax risks as detailed in the Cabinet Resources Committee papers. First of all the new organisation becomes liable for VAT on all non-employee expenditure, estimated at £344,666 per annum. Unlike the Council, this VAT is irrecoverable so it is a net loss to the organisation.
The LATC may also affect the taxable status of Barnet Homes. If that does happen it has been estimated that in 2009/10 it would have meant paying Corporation Tax of £187,000 which is currently retained within Barnet Homes.

I think Cllr Cornelius is absolute right to urge officers to keep looking at the tax implications which could mean over £500,000 of very valuable revenue simply going to the taxman when it could have been spent on some of the most vulnerable people in Barnet.

As ever I remain exceptionally concerned that Barnet seem to press ahead with novel schemes which sound good on paper but which could turn into massive problems.

1 comment:

  1. We all know what happens to pioneers don't we Mr Reasonable

    I will have a few things to say about this proposed LATC on my blog. I do, of course, worry about the fact that this Company will want their own offices, shiny cars and tablet computers, £100k for each of the Directors, an overly large administrative team, and to make a profit which has to come out of the pot somewhere. There is a long way to go before this becomes reality.

    As for making a profit from providing a service to other Boroughs, well that will be at the expense of the users from other Boroughs. We also know that Barnet Council can't run a brewery; what sort of a mess would they make if they had two of them ?

    When regime change finally arrives there will be an awful lots of grating gear changes as everything goes into reverse.

    I hope one day that One Barnet will have been transformed into Commonsense Council. I can hope.