Local government reform is on the agenda for many councils. For some, the next few months will be about decisions, timelines, and delivery. Alongside service continuity, there is also a tax and governance workload that can easily get missed until it becomes urgent.

To support clients through this period and beyond, Stephanie Leitch is stepping into a new role as Director for Public Sector Reform at PSTAX. The role will initially focus on local government reorganisation (LGR) and devolution, while also covering related public sector reforms that can affect governance, funding, and operating models.

This is about strengthening the coordination and visibility of our support, so councils have a clear route from early planning through to implementation, with VAT and employment taxes properly addressed and evidenced throughout.

Why reforms create tax risk, even for well-run councils

Reform programmes change the shape of an organisation at the same time as business as usual still has to run. That creates a perfect environment for tax risk to build quietly.

During LGR and devolution work, we typically see change in:

• Service delivery models and who is the “supplier” for VAT purposes
• Contracting and procurement, including new contracts, novations, and variations
• Asset transfers and property arrangements, including leases, shared occupation, and refurbishments
• Shared services, management recharges, and inter authority support
• People change, including restructures, new roles, interim support, agency use, and contractor populations

None of this means a council is doing anything wrong. It means the facts are shifting, and VAT and employment tax positions need to keep pace, with the right documentation behind them.

Common VAT pressure points during LGR and devolution

VAT issues often appear in the detail. The main pressure points we see during reform programmes include:

Supplies and recharges

When services move between teams, councils, or new entities, the VAT position on recharges and support arrangements can change. Small wording differences in agreements can have large VAT consequences.

Property and capital projects

Property transfers, dilapidations, works, and new occupation arrangements can all affect VAT recovery and capital goods scheme considerations. Decisions made early can influence recovery for years.

Partial exemption and recovery forecasting

As activities and income streams change, VAT recovery can move in unexpected ways. Councils often need early visibility, so they can plan properly rather than find out after year-end.

Evidence and governance

Even when treatment is correct, the question is often: can you show your working clearly and consistently? Evidence trails matter, especially where arrangements change several times across a programme.

Common employment tax pressure points during LGR and reform programmes

Employment tax risk is not limited to payroll calculations. Reform programmes increase the volume of scenarios where judgment and evidence matter.

Areas that often need careful handling include:

• Employment status and off-payroll working (including IR35 decisions and supporting records)
• Contractor and labour supply chain compliance, including CIS where relevant
• Expenses and benefits, including termination payments, relocation, and travel patterns
• National Minimum Wage governance and record keeping
• HMRC compliance checks and how they tend to progress once opened

HMRC’s approach is rarely one size fits all. What matters is being organised before contact happens, with a clear narrative and evidence you can stand behind.

How PSTAX supports councils through the reform lifecycle

PSTAX provides specialist VAT and employment tax support for public sector bodies, with experience across councils and the wider public sector. For LGR and reform work, our support is designed to be practical, staged, and aligned to how programmes actually run.

Early stage readiness and planning

• Structured VAT and employment tax readiness reviews
• Risk identification across services, people, contracts, and assets
• Clear action plans with named owners and deadlines
• A working tax register that can be maintained through the programme

Programme support as the model takes shape

• Input into programme governance, workstreams, and decision logs
• Review of key agreements and operating models from a VAT and employment tax perspective
• Support with data gathering, due diligence style questions, and evidence packs
• Workshops for finance, payroll, HR, procurement, and programme leads

Implementation and post change support

• Targeted support for new or changing arrangements once decisions are made
• HMRC facing support where queries arise, including helping teams prepare responses and supporting evidence
• Ongoing VAT and employment tax technical advice as services bed in

Training for teams that need to deliver under pressure

Reform programmes are delivered by people. We support councils with training that is practical and built around public sector scenarios, helping teams make confident decisions and keep records in a form that stands up to scrutiny.

Leadership that strengthens delivery

Stephanie’s focus as Director for Public Sector Reform is to coordinate PSTAX’s national work on LGR, devolution, and related public sector reforms.

That includes:

• Making it easier for councils to understand what support is available and when it is most useful
• Ensuring VAT and employment tax support is delivered in a coordinated way
• Developing practical resources and briefings that reflect what councils are dealing with right now
• Supporting a consistent approach to evidence, governance, and programme decision making

For clients, the aim is simple: clear routes through complex change, with the right tax input at the right time.

If you are preparing for LGR or devolution

You do not need to have all the answers at the start. What helps most is an early, structured view of where the tax risks sit, what is likely to change, and what evidence you will need later.

If your organisation is entering a period of reform, we can help you:

• Identify and prioritise the VAT and employment tax risks that matter most
• Build a workable action plan that fits your programme timeline
• Put the right governance and documentation in place early
• Support teams through implementation and any HMRC contact

Speak to our team

If you would like to discuss your programme, your risk areas, or how to prepare your teams, please get in touch with PSTAX. We can set up an initial conversation to understand where you are in the process and what support would be most useful now.

FAQs

What should councils prioritise first for VAT during LGR?

Start with a structured review of the likely operating models, key contracts, and property arrangements, then build an action plan and evidence log that can be maintained through the programme.

Does devolution change VAT treatment?

It can, depending on the entity structures, contractual arrangements, and how services are delivered and recharged. Early review helps avoid surprises later.

How can we reduce employment tax risk during reform programmes?

Make sure off payroll decisions are documented, contractor populations are understood, benefits and expenses are governed consistently, and teams know what evidence HMRC will expect.

When is the best time to seek support?

As early as possible, ideally before operating models and agreements are finalised. Early input reduces rework and strengthens documentation.

Can PSTAX support both VAT and employment taxes in one programme?

Yes. Our support covers both areas in a coordinated way, so councils do not have to manage multiple disconnected workstreams.