£4m tax demand as audit watchdog’s own books probed
Finance body’s Rangers-style row with HMRC
IT is the august body tasked with keeping a close eye on how officials spend taxpayers’ hardearned cash. But government spending watchdog Audit Scotland’s own finances are now facing scrutiny – from the taxman.
Her Majesty’s Revenue and Customs (HMRC) has got its eye on a cool £4million-plus it claims it is owed.
In a fascinating parallel with Rangers FC’s recent dispute with HMRC, Audit Scotland is engaged in a big tax case and a smaller tax case with the tax authorities. HMRC is seeking to recoup £ 4.1million of VAT rebates which it believes were wrongly paid since 2006 to Audit Scotland, which is understood to have recouped the tax incurred by external companies that it contracted i n to do audit work. HMRC will also hit Audit Scotland with interest and penalties for a second VAT debt of about £160,000, liable on income earned by contracting out its staff to other public bodies. The full extent of the debt was revealed at a meeting of the Scottish Commission for Public Audit (SCPA) at Holyrood yesterday.
Auditor General for Scotland Caroline Gardner said: ‘There are two VAT issues under discussion between us and HMRC.
‘The first relates to registration of Audit Scotland for business activities, which has been a matter of discussion over the last couple of years.
‘That contingent liability of £160,000 is now crystallising and we are pleased to say that that issue is now closed down, and we are simply waiting for confirmation of the charges that HMRC may apply within the £160,000.
‘ Unfortunately, however, HMRC have now raised a new issue that relates to the tax status of the Accounts Commission.
‘When Audit Scotland was formed in 2000, it merged the former Accounts Commission for Scotland with the National Audit Office’s activities in Scotland to f orm the new body.
‘ Before the merger, the Accounts Commission had what is called Section 33 status, which enabled it to reclaim input tax on the
‘Responded robustly’
audit fees charged to local government.
‘We discussed with HMRC’s predecessor body about continuing that status, since the Accounts Commissions responsibilities were unchanged.’
Since 2006, Audit Scotland has been recovering the VAT on behalf of the Accounts Commission, but HMRC has now challenged this arrangement and suggested that tax recovered during that period should be repaid.
Miss Gardner said: ‘The scale of the past liability is more than £4million. The amount we have reclaimed over that period is between £400,000 and £500,000 a year.
‘We have just been through a four-year budget strategy in which we have reduced the cost of audit by more than 20 per cent.
‘I struggle to see how we could reduce our costs by anything approaching that amount.
‘We would continue to apply that pressure but the options we would have would be to ask the SCPA for funding or look at recovering it through local government fees, neither of which is palatable.’
In a letter to the SPCA, Miss Gardner said: ‘If the agreement is not continued in future, the cost of local government audit would rise by 4-5 per cent.
‘We believe HMRC have some fundamental misunderstandings about the current arrangements and have responded robustly.’ A HMRC spokesman said: ‘For legal reasons, HMRC cannot comment on the affairs of individual businesses.’