COUNCIL bosses are desperately trying to avoid a £290,000 VAT bill – which could be on its way from the taxman because of the money spent on the Red Lion Quarter in Spalding.
Members of South Holland District Council’s cabinet heard how officers have had to take expert advice after they fell foul of ‘anti avoidance’ legislation bought in by Her Majesty’s Revenue and Customs (HMRC) to stop firms deliberately avoiding paying VAT.
Spending £6.5million on the food heritage centre in Red Lion Street has triggered a complex tax law which opens the council up to paying VAT for all of its spending by breaking its “de minimus” limit.
If the council does not work out a way to bypass the rules it would pile a £290,000 bill onto the authority – at a time when it is braced for a reduction of its Government grant to the tune of £1.5 million for 2010/11.
Council leader Gary Porter vowed not to get to a stage where that bill has to be paid.
The VAT rules came in in 2008.
Council economic development manager Bruce Wakeling explained: “This rule is actually intended to stop people from deliberately setting up a process by which to avoid paying VAT.
“We haven’t done that but the way we are doing this could get us into their regulations.”
Mr Wakeling explained that the authority has been advised to split Boston College’s lease into two - one for their educational part of the Red Lion Quarter and one for their restaurant, which will be run by students.
Coun Porter questioned how that will take the business out of having to pay VAT but Mr Wakeling said that was the advice of experts KPMG and Boston College’s legal team.
Project manager Richard Baggaley said: “We will try to resolve the matter for the best interests of the district. Unfortunately the avoidance rules have changed following the process at the beginning of the contract. Now we have got to minimise the liability.”
Officers said it was not possible to spread the payments for the Red Lion Quarter into another financial year due to the terms of the grants given to the council and the contracts signed with builders.
Coun Porter also asked if the council could simply give away the building - rather than rent it out to Boston College - to negate the bill.
Officers will explore if this is possible but believe that experts ruled that out in discussions and Coun Roger Gambba-Jones was uneasy about giving away the prime town centre site.
The centre - which will house a food court for local producers as well as the college rooms and restaurant - is almost finished and should open in March.
The centre was a joint project between South Holland District Council, Boston College, Lincolnshire County Council, Lincolnshire Enterprise and the East Midlands Development Agency and aims to celebrate the district’s food heritage and boost the town centre economy, while also regenerating a previously derelict site.