YCBID: The VAT-Man Cometh!

YCBID: The VAT-Man Cometh!

• – an “In My View” article by NIGEL WARD, offering a layman’s opinion on the impending catastrophe awaiting the Yorkshire Coast BID – for starters!

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Since it first was mooted, the proposal to establish a Business Improvement District (BID) for the whole of the Yorkshire coast has been viewed by businesses with suspicion and mistrust – most especially in Whitby, where the Yorkshire Coast Levypayers Association (YCLPA) was established and has led opposition to the BID.

The general consensus was (and is) that local tourism-related businesses have a better and deeper understanding of their own business models than any cobbled-together group of apparatchiks of dubious credentials could ever have.

On 1st August 2022, the Yorkshire Coast BID Ltd will reach the third anniversary of its incorporation, by which date it should have accrued around £3 million in Levy payments.

In fact – and despite the sizeable Levy payments of the big players (supermarkets, holiday parks, etc), it has actually received not much more than half of that, because hundreds of smaller businesses have elected to withhold payment, in the belief that, sooner or later, the vast swathe of evidence gathered by the YCLPA and others – the Enquirer not excluded – will expose the BID as little short of a hey-diddle-diddle.

By and large, the ‘projects’ developed and rolled out by YCBID have been greeted with derision. In some cases, these ‘projects’ have even produced negative consequences – like the severe drop in donations to organisations such as the various “In Bloom” groups along the coast. As far as I can discern, far from enhancing the “tourism offer”, YCBID has achieved no positive impact whatever. Some of its ‘projects’ have actually drawn tourists away from seafront businesses.

Referring readers to my brief report of Wednesday 22nd June 2022, I can now fill in some further details.

The significance of the unanimous Resolution achieved at ERYC Full Council on 22nd June 2022 is perhaps best encapsulated in the text of the address given by Councillor Andy WALKER [Y.P.] in Seconding the motion Proposed by Opposition leader Councillor David NOLAN [Lib.Dem.]:

Thank you Mr Chairman.

This Council is not just a passive Levy-collector but was instrumental in the establishment of the company. This is meant to be a business-led initiative but didn’t achieve enough votes – only when the votes of local authorities were added, did it cross the pitifully low threshold. And each public ‘asset’ got a vote. So if the Clifftop carpark and the Princess Mary Promenade Public Conveniences had not voted, we would not be in this mess.

We, this Council, are pursuing local businesses through the courts for non-payment of the bills which, we have been advised, we must collect. These businesses have been through the mangle, but throughout the pandemic, the Levy has been demanded – not just when they were closed, but even when their customers couldn’t travel to the coast.

In fact, probably the only Levy-paying businesses that did succeed during the pandemic were the funeral directors. I’m not quite sure when they became a tourist destination attraction.

The emerging expert opinion indicates that all those bills may be wrong.

This is complex, but in a nutshell, a number of the most-respected the VAT consultants in the UK – they indicate:

1. The BID company registered for VAT
2. The bills for Levy include VAT
3. HMRC insist that VAT must not be added to those Levy payments.
4. Councils have reclaimed that VAT – but were never actually entitled to those monies.

When I say “emerging” – this was first laid before Scarborough Borough Council almost three years ago!

And . . . the BID company had the opportunity – in fact, the moral duty when handling millions of pounds of public money – to engage independent auditors . . . but they declined. They said that their internal procedures were sufficiently robust and they didn’t need an external audit. Such an audit would have discovered the VAT error and this whole sorry matter would have been averted. But here we are – with the distinct possibility of a six figure liability!

So, this motion seeks your support for an urgent review to hear that external professional opinion on the billing procedures, together with our liabilities and involvement with the Yorkshire Coast BID.

I have no hesitation, Mr Chairman, and beg to Second.

Thank you Mr Chairman.

[Watch Councillor WALKER’s address here].

The “six figure liability” to which Councillor WALKER refers is the VAT component of the £3 million of Levy invoiced by the two Councils. At the present rate (20%), that VAT component would amount to around £600,000 – the majority of which would be down to Scarborough Borough Council – plus, by the time Her Majesty’s Customs & Revenue (HMRC) has its say, there may also be interest due and penalties to be paid. Altogether, ratepayers could be looking at the thick end of a cool million.

My understanding is that YCBID elected to be VAT-registered in order to reclaim the VAT component of bills it would necessarily incur buying in goods and services to realise its ‘projects’. Without VAT-registration, allowing it to reclaim the VAT, it would be paying effectively 20% ‘over the odds’ for these goods and services – a poor return on businesses’ investment and by no means an arrangement that would satisfy anyone as to its VFM – Value for Money.

VAT-registration is contingent upon having a turnover of £85,000+ per annum.

On the face of it, the £1,000,000 per annum Levy would comfortably elevate YCBID’s ‘turnover’ well over that VAT threshold of £85,000.

Unfortunately for YCBID, HMRC has specified that the Levy – a form of taxation akin to Council Tax or Non-Domestic Business Rates, as opposed to ‘takings’ (commercial revenue) – does not qualify as ‘turnover’.

It is to be hoped that Scarborough Councillors can grasp the following more detailed explanation.

There is, in fact, an HMRC-approved “loophole” which the Operating Agreements recognised – i.e. both Councils and YCBID agreed that YCBID would invoice the Councils for (and I quote) “administering the BID arrangements”. If this accord had been respected, then there would be no problem. Regrettably, however, YCBID and the Councils did not comply with the contractual position as set out in the Operating Agreements.

SBC and ERYC have both maintained that they have been acting as “Agent” for YCBID. This means that YCBID could not not raise VAT invoices, because the Levy money collected on YCBID’s behalf by the Councils (in their capacities as “Agents” of YCBID) automatically belongs to YCBID – with no basis, therefore, for YCBID to invoice the Councils for the service of “administering the BID arrangements”.

This position is compounded because, in its published accounts (at Companies House), YCBID describes its ‘turnover’ as “…the fair value of Levy charges raised on businesses within the BID area.” There is no mention of YCBID “administering the BID arrangements”. This confirms the fact that both Councils and YCBID have acted, since the commencement of the BID, in a manner that is actually the exact opposite of the position agreed in their Operating Agreements. As such, the Councils and the BID company must be deemed to have varied the terms of their contracts – with the devastating VAT consequences described above.

Unless, of course, they all come clean and admit their mistakes, rectify the already-published accounts, re-issue the invoices, etc, etc.

In the real world (as opposed to the cloistered domain of local authorities), intentionally incorrect invoicing is a criminal matter.

In fairness to the elected members of both SBC and ERYC, only individuals with relatively sophisticated accountancy skills and considerable knowledge of contractual and financial law could have been expected to identify the above-described VAT catastrophe.

Yet, astonishingly, YCBID declined to commission external auditors who, if worth their salt, could have rectified the cock-up from the get-go. YCBID’s Chair, Mr Clive ROWE-EVANS (according to YCBID minutes) deemed internal financial controls to be sufficiently “robust” as to require no expert supervision – and both Councils accepted that.

How smart was that?

In early 2019, while still in Opposition, the present SBC Leader demanded that, after the ballot, the BID proposal should come back to Full Council. The then Leader, Councillor Derek BASTIMAN [Con.] agreed. This never happened – and another opportunity was lost to uncover the ‘mistake’. Referring to the outcome of the ballot of businesses held to establish a mandate for the BID to proceed, the Leader’s so-called Deputy, Councillor Liz COLLING [Lab.] told concerned members:

“There’s been a vote. You lost. Get over it.”

It looks like the tables are now turned, Liz. You screwed up – and Mr Clive ROWE-EVANS screwed up. Get over that!

And it is worth remembering that Mr Peter STANYON, CEO of the Association of Electoral Administrators, has already investigated the establishment of YCBID – and found nothing untoward about the parties’ application of the Operating Agreement.

Give me strength! Can no-one in local government be relied upon for competence?

But wait! Both sets of Councillors employ, and rely upon, Officers of Paid Service – whose credentials and experience should have ensured a thorough grasp of these matters.

In the case of SBC’s Finance Director and s.151 Officer, Mr Nick EDWARDS, we have previously witnessed cause for concern. SBC’s accounts have not be signed off by MAZARS, the External Auditor, since the 2015/16 financial year.

The accounting of the ring-fenced revenue accrued from the Whitby Harbour Undertaking is soon to be the subject of a Court ruling. My expectation is that Mr EDWARDS will be adjudged to have been in serious error. Similarly, the ring-fenced revenue from the Scarborough Harbour Undertaking appears to have been mismanaged by Mr EDWARDS in much the same way. Readers may also be interested to read the following article on the BBC News website, entitled “Government could intervene in running of Nottingham City Council”, reporting on how Nottingham City Council misused up to £40 million of ring-fenced cash.

Now consider this written response to a Public Question to SBC’s Audit Committee on 23rd July 2020:

No formal sanction, that is. But surely the failure to prepare the Council’s accounts robustly enough to withstand scrutiny by the External Auditors for six years could be expected to have a negative impact on Mr EDWARDS’ future employment prospects, after SBC bites the dust next March? I cannot imagine that Mr EDWARDS, who has been planning his retirement for some time, gives much of a flying flock about that.

Of course, Mr EDWARDS will presumably have relied upon legal advice from SBC’s Legal Director & Monitoring Offer, Mrs Lisa DIXON, whose performance will now come under intense scrutiny from quarters with much more ‘clout’ than the Enquirer. Mrs DIXON – may I remind readers? – misunderstood the law when she attempted to “terminate” the Enquirer’s predecessor (the Real Whitby Magazine); and again when she reported the ‘leak’ of the Top Secret Highly Confidential ARGOS papers to the North Yorkshire Police, having threatened the ‘guilty’ Councillor with life imprisonment, only to discover that no criminal offence had been committed; and yet again, when she failed to secure the £9 million Benchmark loan or the lease on the North Bay Railway. Forgive me for concluding that there are times when the niceties of the law seem to escape Mrs DIXON’s grasp.

The same could be said of Mrs DIXON’s opposite number at ERYC, Mr Mathew BUCKLEY, who (I have now been informed) has opted for early retirement. Tellingly, this news was imparted to me by an ERYC Councillor in a rather different form of words – “Mathew has abandoned ship!”. I would doubt that ERYC’s Appointments Committee would be eager to approve Mrs DIXON as Mr BUCKLEY’s successor.

The P45s are on me!

Most disturbingly, SBC CEO Mike GREENE, in a briefing note to all SBC Councillors, has confirmed that expert advice was sought at very the outset. From whom? Coco the Clown? No. My information is that the “expert advice” came from none other than BID ‘architect’ Mr Mo ASWAT. If only his ‘clients’ had followed it!

Looking ahead, I confidently predict the demise of the Yorkshire Coast BID. My guess is that no time will be lost in spreading the word to other anti-BID organisations. In fact, the very same VAT error that has taken place between BIDs and Councils up and down the country may well bring down BIDs on a national scale. Speed the day. I am already hearing reports from businesses in Skegness that East Lindsey District Council (on the Lincolnshire coast) has been alerted to the problem and is already scrambling for cover.

The ever-smiling Mo ASWAT – the Tony BLAIR crony behind the BID scheme – may not be sporting such a joyous grin for very long.

Councillor Andy WALKER’s address: