Taxation and VAT

Bidders are required to satisfy themselves generally as to their own tax position, including any issues surrounding the application of any capital allowances and revenue relief against corporation tax.  All assumptions in respect of taxation should be clearly set out in the Financial Model.The Fire and Rescue Authority or Police Authority assumes that VAT will be charged on the Unitary Charge, and that the Fire and Rescue Authority or Police Authority can recover this in the normal way.  Accordingly, the Unitary Charge should be shown net of VAT in the Financial Model.  

The Fire and Rescue Authority or Police Authority assumes that the Bidder can recover VAT suffered on its cost inputs and that the costs included within the Financial Model should be shown net of VAT.  If the timing effect of the VAT process is significant then it should be included within the 'Working Capital Changes' line of the Financial Model.  If the Bidder does not expect to be able to recover some, or all, of the VAT involved then these specific costs should be shown inclusive of VAT in the Financial Model.

Bidders should not assume any changes to the rates of Corporation Tax, the marginal relief banding and other statutory parameters except in so far as these have been incorporated into a Finance Act.  Tax losses should either be carried forward and used against future year's profits or be applied as a credit in the year in which they are generated.  This latter treatment may be appropriate if the Bidder expects to be able to use the losses elsewhere within the group or against other sources of income.

Bidders must specify the applicable tax rates, any marginal relief that the Bidder is assuming and details of the capital and/or revenue allowances that the Bidder is assuming they will obtain.

Bidders must obtain and submit with their Solutions an opinion from their financial advisors and/or auditors that the proposed tax treatment is likely to attract the allowances assumed and that the treatment of tax losses is likely to be permissible.  This opinion should set out the basis for the treatments adopted, and identify any risks associated with it.  This opinion should also confirm that the accounting treatment adopted to support the tax assumptions would be in accordance with UK GAAP and will not adversely affect the Fire and Rescue Authority or Police Authority's ability to comply with FRS5.

These opinions are required for evaluation purposes.  The risks associated with the proposed tax treatment and the risk of actual tax relief's being less than or different from those assumed, is to be borne by the successful Service Provider and not the Fire and Rescue Authority or Police Authority (see Clause • of the Model Contract).

Bidders must make their own decisions as to whether or not to seek advance tax clearance from the Inland Revenue for the proposed treatment.  If such clearance is sought, Bidders must attach the appropriate correspondence to their submission.  If the Bidder is relying on a 'CoP10' tax treatment, the Fire and Rescue Authority or Police Authority will require Inland Revenue clearance before contract / financial close.

Bidders should also identify any fallback positions if the proposed treatment fails or other possible tax treatments that may be applicable to this fire and rescue service or police project.