can a parish council make a grant towards money that they they receive for the purpose of reclaiming vat

Question

A group of parents formed a charity for the sole purpose of raising funds to equip a playpark on land owned by the parish council.  Grant applications were made and fund raising events held. Part of the work was completed. The second part was  for outdoor gym equipment.

The Parish Council donated £10,000.  The charity website claims that they paid for the equipment and completed the park which they then handed over to the Parish Council.

The Parish Council finances show the equipment being invoiced through the council and vat reclaimed.
What is the position re the grant of £10,000 paid from PC funds

The money raised by grant applications
The claim for VAT
The auditor of the PC accounts?

Answer 1

This is quite common.

A group wants a piece of equipment, the PC buys it, effectively ex VAT and provides the equipment to the group.

This allows the group to get the 'full' 10k instead of £8333.

Comments

That is not what happened.  a group of parents formed a charity and applied for grants to purchase playground equipment on land owned by the PC.  The PC gave a grant of £10,000.
As money was raised the charity deposited money including the grant into the bank account of the PC.
The PC purchased the equipment and recovered the vat. When the park was completed the Charity transferred its assets to the PC for £1
My concern is The PC was making a grant to the charity that was returned to their bank account.
The PC was paying for the equipment  using the money raised by the charity.
The PC was reclaiming VAT on expenditure paid for by the charity

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Indeed, worryingly common, bearing in mind the fact that it isn't legal!

Answer 2

What a strange way to achieve something relatively simple! Why did they set up the charity and has it now been dissolved? Did the charity raise any money from funding sources that could not have funded the council directly? The group of parents could have worked with the council to submit funding applications in the name of the council. They could also have undertaken local events and other fundraising on behalf of the council and paid the proceeds into the council's account.

But in answer to your questions, if the council gave the charity money to purchase equipment, the charity must pay the VAT. The charity must also pay the VAT on items purchased using funds raised from other sources. The council may not allow third parties to utilise its VAT exemption under any circumstances. The council could have agreed to purchase £10,000 worth of equipment to assist the charity in its work, as long as the ownership of the asset remained at all times with the council and no money passed between the two bodies. In this case, the council could have made a legitimate application to reclaim the VAT.

Furthermore, the trustees of the charity may have contravened charity law in selling thousands of pounds worth of shiny new charity assets to a related party for a quid.

Comments

the PC  has maintained and insured the playpark since April 2019 when it was transferred for a £1 The vat reclaim was 2018

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Extract below from PC minutes the Charity is refusing to comment or respond to questions
Play Park working party:
1. To note the working party report
Members noted the report.
2. Play park costs and recommendation for Phase II
Members discussed the report at length and thanked Cllrs and Charity for their hard work. All members approved to appoint Play Spaces to provide equipment and provide installation
services and eibe to provide equipment in order to carry out Phase
Two in the summer. Due to the hard work and efforts of funds raising by charity sufficient funds should be available and transferred to council for a summer installation.
3. Play park trim trail costs and recommendations
Members agreed to offer charity  £1500 towards the cost of a new Trim
Trail and accept charity proposal for them to raise funds for remaining
costs.

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Has the council's asset register been updated with the full cost of the equipment purchased?

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The last AGAR was April 2019 the same date that the documents were signed accepting the equipment for £1 the figure for assets in April 2019 was the same as the previous year No AGAR has been produced since April 2019

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there is no audit report re that agar which there is with the previous year