Agenda item

The VAT Recovery Updated Position report will follow in a supplementary pack for this meeting.

The Director of Finance and Section 151 Officer presented the VAT Recovery Updated Position report for the Executive Committee’s consideration.

The report set out the current position in relation to longstanding VAT issues affecting both Bromsgrove District and Redditch Borough Councils. Members were advised that, between April 2021 and October 2024, the Council had been unable to submit periodic VAT returns for a number of reasons, including:

• Incorrect configuration of the cash receipting back office.

• Incorrect inter-entity processing within the TechOne Enterprise Resource Planning system.
• Incorrect payment and bank statement file processing.
• Failure to align work processes with the configuration of the TechOne VAT module.
• Staff turnover and a consequent period of lack of internal VAT expertise.
• Weak reconciliation processes.

The Committee was informed that an approach had been agreed with His Majesty’s Revenue and Customs (HMRC) whereby the Council would submit nil returns for each outstanding period, followed by Error Correction Notices to reflect the returns that ought to have been submitted. It was noted that required reconciliations were being processed manually.

Officers reported that a repayment of £20,616,650 had been received from HMRC which, once offset against existing payments made, resulted in an overall net cash gain of £19,889,753 to the Council. While the improvement in the Council’s cash position was welcomed, Members were advised that the underlying accounting transactions had already been recognised in the relevant prior financial years.

In respect of penalties, the Committee was notified that HMRC had agreed to suspend the financial penalties that would normally be applied in the event an organisation failed to submit timely and accurate VAT returns. This suspension was subject to the Council meeting a number of specified conditions, which were outlined to Members.  As part of the proposed arrangements, it was requested that the Audit, Governance and Standards Committee provide oversight to ensure the appropriate delivery of those conditions.

Members were also updated on the Council’s current VAT return process. It was reported that monthly VAT returns were now being submitted on time and that independent reviews of each return were undertaken prior to submission. The results of these reviews were presented to the Section 151 Officer or Deputy Section 151 Officer to confirm agreement to submit the return. Escalation procedures and sanctions were in place should these controls not be followed. Members were reassured that these arrangements represented a strengthened control environment and increased organisational resilience.

In concluding the presentation, officers summarised that the VAT position had been rectified, the Council had received substantial repayment from HMRC, and improved statutory compliance was now in place.

The Portfolio Holder for Finance welcomed the report and commented that the outcome would significantly reduce risk in both the short and long term, while also increasing confidence in financial projections for future years. He expressed his personal thanks to the Finance team for their work.

During consideration of the item, a question was raised regarding the length of time taken for VAT to be recovered from HMRC, given that returns had been submitted in December 2024. Officers explained that, due to the substantial sums involved, HMRC had undertaken extensive assurance checks. In addition, much of the VAT return process was manual, which required significant work to respond to HMRC queries and provide the necessary evidence. It was therefore clarified that completing the assurance process was inherently time?consuming.

The Committee also placed on record its thanks to the System Implementation Support Consultant in recognition of his contribution in assisting the Council to resolve the VAT issues.

RESOLVED that

1) The resolutions of the outstanding VAT matters be noted;

2) The net cash gain position of £19,889,753 recovered by the Council following the HMRC repayment £20,616,650 received on the 3rd April 2026 offset by payments and receipts already made and received to/from HMRC of £726,897 be noted;

3) The mitigation of the cashflow risk be noted and the corporate risk register duly updated to reflect the positive change to the Council’s cash holding position;

4) The penalty suspension conditions with HMRC be noted; and

5) The Audit committee is requested to maintain oversight of the delivery of the actions to satisfy the agreed penalty suspension conditions.