30 September 2005
Local authorities have forced the Revenue & Customs department into a U-turn over plans to standardise the tax rates paid by councils when settling backdated equal pay claims.
Public Finance has learnt that the R&C has jettisoned proposals to levy 'a representative rate of tax' on councils that might soon have to pay out more than £2bn in backdated equal pay claims, because of disputes over the tax rates involved.
Councils, the Local Government Association and the Employers' Organisation have instead convinced the R&C that the future calculation of settlements should be undertaken on a council-by-council, or individual-by-individual basis.
The LGA/EO position was accepted at a meeting between the two sides on September 23, at which the department was represented by board member Peter Gurney and tax advisers from PricewaterhouseCoopers.
Documentation obtained by PF following the meeting states: 'HMRC… outlined a proposal for calculating a representative rate of tax obtained through sampling a small number of local authorities. HMRC now seem to be moving away from this proposal in light of discussions with authorities.'
The likely outcome is that it could now take years for local authorities to settle tax claims levied by the government, but a senior EO source acknowledged that the figures contributed by individual councils 'were more likely to be accurate and accepted'.
It is the latest twist in the ongoing saga of equal pay claims that could be brought against councils by tens of thousands of staff.
The R&C recently wrote to Sarah Wood, the director of policy at the LGA, informing councils that almost all backdated claims would be subject to PAYE tax and National Insurance payments.
Councils had lobbied the government to waive or minimise tax additions, claiming they would add hundreds of millions of pounds to an estimated £2bn bill nationally.
At the September 23 meeting, LGA and EO officers informed R&C that they were unlikely to contest the department's interpretation of legal advice. But the EO source said that the tax bill represents 'another hefty financial pressure' that must be addressed by next year's local government finance settlement.
PFsep2005
