Norfolk councils could have to pay thousands of pounds to the taxman after setting up a company to avoid VAT.
North Norfolk and Great Yarmouth councils started a company called Coastshare Limited in 2013 to give cheaper back office services, such as accounting and admin, to each other and charities. King’s Lynn and West Norfolk Council joined in 2014.
Members of Coastshare provided one another with services at cost price and did not pay VAT, at 20pc, as they believed they had an exemption as not-for-profit organisations.
When set up, Coastshare was hailed as a pioneering way to save charities money. It was marketed as “No VAT, More Charity.”
But on Monday, a meeting of King’s Lynn and West Norfolk Council’s audit committee was told that HMRC was reviewing the arrangement.
The council’s finance officer, Michelle Drewery, said around £900,000 of services were billed to Coastshare meaning that if they have to pay VAT, it would cost the councils £180,000.
Asked by independent councillor Alexandra Kemp how long the review could take, Mrs Drewery said: “We are at the hands of HMRC. We just have to respond to them and wait for them to reach a conclusion on that.”
Council leader Brian Long said the authorities had taken independent advice before Coastshare was set up which confirmed it was not eligible for VAT.
He said if that advice turned out to be wrong, then the councils would seek costs from insurers.
Coastshare’s website has been taken down but an archived version of its site said it was allowed to avoid charging VAT for its services thanks to a law called the Finance Act 2012.
Great Yarmouth Council said it had not been approached by HMRC.
But a spokesman for West Norfolk and North Norfolk councils said: “In 2018 government VAT rules changed regarding charges to cost-sharing groups and Coastshare engaged in comprehensive discussions with HMRC regarding the implications of these changes for its operations.
“As a result of these discussions it was decided the Coastshare model was no longer viable.
“While there has been no formal investigation of Coastshare, HMRC have asked the Borough Council of King’s Lynn & West Norfolk some questions relating to Coastshare and we are assisting with their enquiries.”
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