Police Scotland hit with £23m tax bill

The head of Scotland’s national police force has hit out over a £23 million tax bill it has been landed with, insisting it could pay for almost 700 extra officers.

Chief Constable Sir Stephen House and justice secretary Michael Matheson have urged the Treasury to change its position. Picture: Ian Georgeson

Chief Constable Sir Stephen House said the VAT bill was “bewildering” and that Police Scotland is the only force in the UK which is forced to pay the tax.

Scotland’s new justice secretary, Michael Matheson, also branded it “totally unacceptable” and urged the Treasury to bring an end to the situation.

The new Scottish Fire and Rescue Service is also facing a VAT demand, of £4m. Both tax bills are currently being covered by a special budget set up by the Scottish Government to deal with the matter.

But Sir Stephen told MSPs on Holyrood’s justice committee yesterday: “It’s a huge bill.”

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He added: “I’m very happy to go on record and say that £23m is a huge amount of money – it’s probably about 680 officers-worth, which is an awful lot.

“I’m not necessarily saying we would spend it on that, but it would be good to have that money.

“I’m not a tax expert by any shape of the imagination, but I do find it bewildering that we seem to be the only police service in the UK which is charged VAT.

“None of the 43 police forces in England and Wales pay it and the answer seems to come back from the Treasury that it’s because you’re a central government organisation.

“But the Police Service of Northern Ireland, they don’t pay VAT. And you’ve got the National Crime Agency; they don’t pay VAT. But we pay VAT.

“I just don’t understand the logic of it and I don’t think the Scottish Government understand the logic of it either.”

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He added: “At the moment the [Scottish] Government is covering the cost, but in a couple of years’ time, that will be coming out of the police budget and that will be significant.

“If we have to find the money for VAT rather than the government, it will have an impact on our budget, there is no doubt about it.”

The VAT bill was £23.8m in 2013-14 and it is predicted to be £23.2m this year. It comes at a time when police budgets face cuts – with the creation of Police Scotland aimed at saving cash.

Sir Stephen warned yesterday that more redundancies were in the pipeline for police support staff, as the force faces further spending reductions next year.

The organisation has an overall strategic target of saving £1.1 billion by 2026. About £60m of savings are in line to be made this year, with a similar level of cuts next year. There is no “specific target” on the number of staff who will go, with some control rooms poised to be axed and a review of custody centres also looming.

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Mr Matheson hit out at the VAT bill and told MSPs he planned to “pursue the issue with vigour” in the coming weeks. “To date, the Treasury ministers have refused to change their policy position on this matter, which we think is unacceptable,” he said.

He said the prospect of a further 680 officers being funded by the cash showed the “impact that this can have.”

He went on: “We’re very clear that this is a policy matter which Treasury ministers are free to make a decision on and could do so, in my view, at the stroke of a pen.”

Previously, the eight separate Scottish police forces were able to claim back the bill through Section 33 of the UK VAT Act because the bulk of their funding was deemed to come from local councils. But Police Scotland is classed as a national body, with the bulk of its cash coming from the Scottish Government, and is therefore no longer allowed to use this exemption.

But Scottish Government finance chiefs point out that the BBC is allowed to reclaim VAT through Section 33, even though it is not funded by local authorities. Former justice secretary Kenny MacAskill, left, has also previously pointed out that the UK government changed the rules on VAT for academy schools in England, which are entirely funded by central government.

Mr Matheson told the justice committee that he would pass on correspondence with the Treasury on the issue.

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