Taxation Issues

Significant changes for local government in England will lead to potentially serious tax issues unless local authorities prepare well in advance. PSTAX has worked with the councils involved in the last four rounds of local government reorganisation and can help you through the upcoming changes and minimise tax liabilities and disruption.

Background

The government’s English Devolution White Paper, released on 16 December, details its plans for devolution and local government reorganisation (LGR). The proposals represent the most significant potential reform of local government since 1972. The proposals are complex and wide-ranging, and we will comment further as they progress to implementation. We have summarised a selection of the proposals below.

Strategic Authorities

There will be three types of legally defined Strategic Authority.

• Foundation Strategic Authorities: these automatically include non-mayoral combined authorities and combined county authorities, and any local authority designated as a Strategic Authority without a Mayor.
• Mayoral Strategic Authorities: the Greater London Authority, all Mayoral Combined Authorities and all Mayoral Combined County Authorities will automatically begin as Mayoral Strategic Authorities.
• Those who meet specified eligibility criteria may be designated as Established Mayoral Strategic Authorities.

The White Paper proposes that Strategic Authorities have seven “areas of competence”.

1. Transport and local infrastructure
2. Skills and employment support
3. Housing and strategic planning
4. Economic development and regeneration
5. Environment and climate change
6. Health, wellbeing and public service reform
7. Public safety

LGR

The government will “facilitate” a programme of LGR for two-tier areas and unitary councils that are failing or where their size or boundaries may hinder their ability to deliver sustainable and high-quality services for their residents. All county and district/borough councils are expected to be reshaped into unitary councils. The government will deliver this process as quickly as possible, using legislation where it becomes necessary to ensure progress.

Realigning boundaries

The government also has the ambition to realign public authority boundaries. Over time, public services will be reorganised to be delivered in the same areas as Strategic Authority boundaries. Public service boundaries (police, probation, fire and health services) will align with Strategic Authorities. For example, for police forces and fire and rescue authorities:

• Where mayoral boundaries align with police and fire service boundaries, mayors will automatically take on Police and Crime Commissioner (PCC) and Fire and Rescue Authority functions.
• The government aims to increase the number of mayors responsible for PCC and Fire and Rescue Authority roles.
• Aligning mayoral areas with police and fire service boundaries is a key priority for negotiating new Strategic Authorities.
• If alignment does not currently exist or is deemed inappropriate, the government will work to ensure alignment over the longer term.
• The government will explore whether a single mayor can take on PCC and Fire and Rescue Authority roles for multiple police forces or Fire and Rescue Authorities.

Tax implications

There will be huge disruption in local government while the changes take place. One of the many issues LGR creates is taxation. Almost all taxes are affected, including:

• Employment Taxes
• Construction Industry Scheme
• Corporation tax (where public bodies have subsidiary or associated companies)
• SDLT
• VAT and other indirect taxes

Supporting Councils through LGR

PSTAX has worked closely with all councils in every recent LGR as the sole tax advisor. We have gained significant and unique experience assisting the LGR process and developed a very useful working relationship with HMRC. This article summarises some of the work we did.

Click to read the article

We can help councils by contributing to the reorganisation proposals to government reorganisation, through the LGR process, and when the new unitary council is operational.

Client LGR event

In the New Year, we will be hosting a free online LGR Seminar for district, borough, and county councils, during which we will present a high-level overview of the taxation issues for councils undergoing LGR. Look out for further details, which will be coming soon.

We will be providing more commentary and guidance as the White Paper proposals become reality, but if you have any questions in the meantime, please contact:

Angela Ferguson

Director & Head of Employment Taxes

angela.ferguson@pstax.co.uk

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Colin Scates

Director & Head of Indirect Taxes

colin.scates@pstax.co.uk