A SOMERSET council has been landed with a substantial VAT bill for one of its commercial investments.

South Somerset District Council announced in May 2018 that it would be investing £9.84M in a battery energy storage facility, allowing it to generate income by selling power back to the National Grid.

The batteries for the facility arrived in the UK from China in December, with the council being informed that VAT would not be charged on them.

But the council has now had to cough up £1.35 million for its own operating company after this advice proved to be incorrect.

The authority has said its action has left taxpayers “slightly better off” due to the interest it will earn from the loan being repaid.

Clare Pestell, the council’s director of commercial services and income generation, laid out the grounds for this short-notice loan in a written report to the council’s district executive committee on Thursday (January 10).

She said: “SSDC Opium Power is the company established to deliver and manage the council’s energy storage investment.

“This urgent decision has arisen due to a short-term cashflow matter, arising in relation to VAT payments and rebates.

“The cashflow matter does not affect the overall cost of the project, which is still within the original budget agreed.”

Langport resident Andrew Lee questioned whether the council had done the correct due diligence in the run-up to this situation.

He said: “If you had done due diligence, how is it neither you nor the management company knew the status of VAT for the most substantial element?

“Either you didn’t ask the question, or the answer you were given was incorrect.”

The council’s chief executive Alex Parmley responded: “We sought specialist advice from a specialist in importing, and the advice was incorrect.

“It isn’t a big issue for the project – the project is on time, and it doesn’t add any additional cost to the project.”

Councillor Henry Hobhouse, portfolio holder for property, climate change and income generation, said written assurance had been given that VAT did not need to be paid.

He said: “We had advice from HMRC and our shippers, both of which said you didn’t have to pay VAT to bring them in.

“We have earned a little bit of interest, and the money will be reclaimed in March.”

The total VAT bill for the project is £1,351,649.84.

If the council had refused to pay it, the containers would have remained in port, causing delays in both time and money to the council.

The £1.35 million will be loaned to SSDC Opium Power from the council, and will be repaid in March at a commercial interest rate of 5.25 per cent.

The total amount to be repaid will be £1,422,611.46 – meaning the council will earn nearly £71,000 from the loan.

Mr Hobhouse added: “The fact is the council is slightly better off now then before we did this.”

Councillor Sue Steele, who sits on the council’s scrutiny committee, said she hoped this course of action would not have to be repeated.

She said: “This is something that the council should have known about at an earlier stage.

“I hope that we’ve learnt a lesson and will be very careful in future, certainly when it’s a considerable amount of money as this is.”