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 deny having done anything wrong and refuse to discipline the clerk/ finance officer. The charitable trust was dissolved shortly after signing the paperwork for £1 in . The PC received monthly progress reports re fundraising, approved the purchase of the equipment and took an active part in the playpark. They  did not pay for the equipment out of parish funds and then reclaimed the vat. PC councillors attended meetings held by the charity. the charity held a grand opening in March 2019 and April 2019 the pc accepted the transfer of the assets for £1

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How on earth did this get through audit ? Its Fraud. We have to be very careful with recaiming VAT under 126 - A Parish Council can only reclaim if they paid the money directy - they cannot claim vat off a grant they have given.
Dave your spot on scary days out there !

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The question now is the responsibility of the parish clerk . The Parish Clerk at the time has been off sick since March 2020 when I made my FOI requests, being paid her full salary . A locum clerk has been in post since October 2020. I have raised the issue many times both in emails and FOIs and in parish council meetings. It is never minuted and never responded to. The current chair was a councillor at the time. The Parish Clerk has received sick pay since December 2020.  The ARG has not been produced for several years they simply pay the fines. Therefore the accounts are unaudited.   I know that I could and should report this to HMRC and the charities commission. Should I report it to the next tier of council to prevent the councillor from standing again in May 2020 . I believe that one of the councillors is a relative of one of trustees of the charity. Every year the precept goes up by 12 - 14% with very little in the way of maintenance for the village. Please advise what can I do to sort this out.

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On the sick pay issue, the model contract of employment offers an escalating entitlement, based upon length of service, with a ceiling after 5 years' service of 6 months at full pay followed by six months at half pay.

On the wider issues, your council appears to be operating entirely outside the legal framework. I suggest that you discuss this with the Monitoring Officer of your district or borough council and with your local Association of Local Councils. If you did not receive an adequate response to your FOI requests, you should report this to the Information Commissioner.

There will be new elections for your parish council soon, probably in May 2023, so perhaps you should think about encouraging your neighbours to stand for election to replace those currently in office.

Good luck!

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How long does the PC have to hold all the minutes, bank statements  and grant applications and documentation for before they can legitimately destroy it.

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Forever is the accepted norm.

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I have received a letter the PC refuses to answer my FOI requests. The locum clerk admits that there were issues from 2018 involving the chair and one councillor plus the permanent clerk the PC is now working hard to towards resolving those issues and refuse to note my questions in the minutes and will bar me from the zoom meetings. Should I now report this to the ICO, HMRC and the charity commission

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The council may only refuse to answer an FOI request if they are able to justify this by reference to the legislation. They must always write to you to tell you why. They can't just ignore it and hope that it will go away.

Members of the public have a legal right to participate in council meetings, so they may not bar you without good reason. Speak to the locum clerk and remind them of this.

It is for you to decide how far you wish to go in reporting these matters, but I would certainly urge you to contact the ICO in relation to the FOI requests.

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I am told by a member of the FKPP, which formed as a charity, that following a short village survey  a need to update the old play area was identified.

The Parish Council are not eligible to apply for many grants, hence forming another group.
Both groups agreed what equipment etc was the best and most cost effective.
I have no idea re the VAT reclamation.

Once the play park had been completed, there was no reason for the FKPP to continue, and the charity was dissolved
Is this fraud by the PC ?

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The idea that parish councils can't apply for grants is an urban myth. In reality, the opposite is true, particularly for larger sums of money. Funders need reassurance that the applicant has the necessary skills, experience and procedures to handle the money wisely and deliver on their promises. Many parish councils have been in operation for 125 years now and have all the policies, systems and procedures in place to handle capital works, as well as two levels of audit to verify expenditure. A newly-formed charity rarely demonstrates any of these qualities, so many funders are reluctant to take the gamble.

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I have not found any information on  grants available to a PC for projects only loans. I don't think the clerk was qualified
This PC runs a precept of £30 to £40 K per annum . I am told by a councillor at the time that the deal was that the group had to raise the funds and the pc would provide the land. The PC were not involved in insuring or maintaining the equipment. The charity was formed grants applied for the money started to roll in The Parish Council elections changed the members
A new group of councillors became more hands-on . But it was still fraud to reclaim the Vat on the playpark equipment

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Governing document
CONSTITUTION ADOPTED 26 FEB 2015 AS AMENDED ON 24/02/2016
Charitable objects
FOR THE BENEFIT OF THE INHABITANTS OF TO PROVIDE OR ASSIST IN THE PROVISION OF FACILITIES FOR RECREATION AND OTHER LEISURE TIME OCCUPATION IN THE INTERESTS OF SOCIAL WELFARE WITH THE OBJECT OF IMPROVING THEIR CONDITIONS OF LIFE FOR THE INHABITANTS OF THE AREA OF BENEFIT IN PARTICULAR BUT NOT EXCLUSIVELY BY THE PRESERVATION, PROMOTION, SUPPORT, ASSISTANCE AND IMPROVEMENT OF  PLAY PARK.
Organisation type
Other
Registration history
26 February 2016 : registered
24 July 2019 : removed (TRANSFER OF FUNDS)

What the charity did
The Advancement Of Health Or Saving Of Lives
Recreation
Who the charity helped
Children/young People
People With Disabilities
The General Public/mankind
How the charity helped
Provides Buildings/facilities/open Space
May 2015 the long standing chair of the PC stood down

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The main sources of capital funding for parish councils are the National Lottery, the Landfill Communities Fund and Section 106 or CIL funds from developers, followed by district and county council grants. Housing Associations and the Police also contribute large sums to suitable projects. All of these are five or six figure funders.

You mention that the PC were not involved in insuring or maintaining the equipment, but I hope that this has now changed. The equipment was funded by a charity that no longer exists and sits on parish council land, so the PC must assume responsibility for regular inspection and maintenance, as well as insurance and the council's asset register must be updated to reflect this. The council purchased the equipment and reclaimed the VAT on that purchase, so it cannot deny ownership without admitting the VAT offence!

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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