Labour’s victory at the tribunal centred on an agreement between the party and Customs & Excise over accounting for VAT, which in the past was calculated using a special formula.
Because of difficulty in breaking down Labour’s costs into business and non-business activities, the formula, dating from 1978, was used to work out a fair amount of recoverable VAT.
The VAT liability was changed from ‘non-business’ to ‘exempt’ in 1995, though the formula was not changed until 1998.
Labour argued the formula did not allow for tax exempt supplies – income from affiliation fees and fundraising – and that the agreement was invalid because Customs had changed its policy.
Labour, whose finance chief at Millbank is Titi Talabi, said it was therefore entitled to claw back VAT from 1995 to 1998.
Tony McClenaghan, a Deloitte & Touche VAT partner, said: ‘The method used for determining Labour’s recoverable VAT was pretty unusual. But Customs will have similar agreements with other organisations and the case demonstrates these agreements should be reviewed regularly.’
McClenaghan added: ‘Customs will no doubt be keen to avoid making further forced donations in the future.’
The news will come as a welcome relief as the party became embroiled in the so-called ‘cash for wigs’ scandal currently engulfing Lord Irvine’s Labour fundraising activities.
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