MORE than £750,000 has been claimed back from the taxman by a cash-strapped council to help balance a £10 million budget deficit.

Stoke-on-Trent City Council has clawed back the cash after lawyers found local authorities had been wrongly paying VAT on some services for years.

The incorrect charges ranged from leisure centre admission tickets to burial fees and parking charges and dated back to the introduction of VAT in 1973.

Her Majesty's Revenue and Customs service (HMRC) has admitted liability and set aside funds to meet the flurry of repayment claims.

But the city council is now taking High Court action to try to claim back the interest it says it would have earned on the money. The writ seeks at least £300,000.

The legal action comes as the council battles to reduce a projected £10 million budget overspend this financial year and save or generate a further £10 million from April.

Cabinet member for resources, Councillor Kieran Clarke, pictured, says the reclaimed VAT, along with other recent savings, has helped reduce the current deficit to less than £7 million.

He said: "The city council is one of several local authorities to serve a writ on HMRC, but this is only to claim back what we are owed in interest on VAT payments.

"We are trying to protect our council taxpayers by reclaiming this money, and the writ is commonplace among other councils."

He added: "It may seem cheeky asking for interest on the VAT money we got back, but it was money HMRC was not legally entitled to, and if we owed them money they would certainly be charging us a high rate of interest."

The Local Government Association predicts cash-strapped councils will use the VAT claims as a short-term fix for tackling budget shortfalls.

A spokesman said: "We understand individual authorities stand to gain up to £1 million each, although the exact figure will vary.

"It doesn't really solve the financial problems councils are facing, but any extra money that comes in is going to be of benefit to taxpayers."

Colin Woodward, director of VAT and duties at Basford-based accountancy firm Barringtons, said councils can claim back a wider range of VAT overpayments than commercial businesses.

He said: "Any business can claim back VAT, but local authorities can also claim back VAT they incur as a result of services they have to provide as a statutory body.

"There have been arguments over whether a commercial rate of interest, or a higher compound interest rate, should also be applied to any charges which are reclaimed."