Police Scotland is facing a budget deficit of £25 million because, unlike other police forces in the UK, it is liable for VAT.
At a meeting of the Scottish Police Authority (SPA) on October 27, the force said it was facing its second successive overspend. It is estimated around £23 million of the deficit relates to VAT and the remainder “directly linked to a number of anticipated savings which did not come to fruition”.
Section 33 of the UK Value Added Tax Act states that if an organisation is deemed to receive the majority of its funding from local sources – police forces in England and Wales are judged to fall under this category because part of their funding comes from council tax precepts – then it can reclaim any monies paid.
However, if it the organisation is classified as a national body it is liable to pay the full amount.
The eight regional forces were able to reclaim VAT before they merged to create the single national force in April 2013.
A spokesperson for Police Scotland would not confirm whether force budgets had incorporated VAT payments and it is not yet known who will fund the overspend. When asked whether they would be footing the bill, a Scottish government spokesperson said they will be working with the SPA and Police Scotland to resolve the issue.
In light of the publication of the figures, the Scottish government has expressed its “deep concern” over the “glaring disparity” of treatment between the police service in Scotland and forces in the rest of the UK.
“This unfair treatment from the UK Treasury is costing Police Scotland more than £25 million a year and we will continue to press the UK Government to bring their VAT status into line with all other forces.”
Speaking at a Holyrood Justice Committee meeting earlier in the week Police Scotland Chief Constable Sir Stephen House said it was “bewildering” that Scotland was the only force in the UK that 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.
“I just don’t understand the logic of it and I don’t think the Scottish government understand either.”
Police Scotland Deputy Chief Constable Neil Richardson said:
“We provided an update to the SPA board which highlighted a forecast budget deficit of £25 million for the current financial year.
“We will continue to work with the SPA to identify savings on top of those already achieved across policing and continue to liaise with Scottish government on this issue.”
Scottish Liberal Democrat justice spokesperson Alison McInnes said serious concerns were raised over Police Scotland’s ability to make projected savings when it was created in April 2013. She said
“Scottish National Party Ministers have always insisted Police Scotland’s finances were on track despite evidence to the contrary,”
“They were warned before centralising the police that their policy would see our emergency services become liable for VAT. This is certainly something that needs to be looked at again, but it is no excuse for the figures published.”