Local Government - Refugees in VAT row

Local authorities are locked in a multimillion-pound dispute with Customs & Excise over reclaiming VAT incurred in looking after Kosovar refugees.

The Local Government Association has expressed ‘extreme concern’ at a Customs ruling that prevents councils recovering VAT spent on services supplied to asylum seekers and refugees.

With the initial cost of dealing with each refugee estimated at £3,000, and with up to 1,000 a week set to join the 2,100 already in the UK, the dispute could involve millions.

Customs’ ruling said: ‘When expenditure is incurred by a local authority on behalf of asylum seekers and Kosovar refugees, the services are supplied to the individuals concerned … with the consequence that the authority cannot recover VAT it has incurred on the expenditure.’

The LGA said it would appeal. A Customs spokesman said no final decision had been taken, but added the organisation’s position was restricted by VAT law. He emphasised local councils would be given extra funding to make up for the irrecoverable VAT. The LGA is advising council finance chiefs to keep careful records so the VAT can be reclaimed if Customs relents.

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