Getting the structure right

The popular option is to set up a LATCO as a company limited by shares, but there are a mirage of options.

• Limited company – by shares or guarantee?
• A co-operative – employee benefit or community benefit?
• Charitable – community interest company or a registered charity?

With each of these structural differences, there are implications.

• Direct tax implication (Corporation Tax)
• Indirect tax implications (VAT)
• Governance implications (who are the directors, shareholders etc.?)
• Political implications
• Growth implications

Examples

LATCO 1 – A LATCo is set up to provide property maintenance services to develop residential property units, which the council will then acquire and let as part of its housing stock.

Alarm bells?

• Funding – possibly depending on the arm’s length nature of the funding provided by the council.
• VAT – definitely! A mix of VATable and exempt activities happening here, there is a potential to leak VAT.
• Commercial – potentially! There is a mix of risk levels here all wrapped up in one legal entity.

LATCO 2 – A LATCo is set up to acquire and hold residential properties, which will be let in the district to help with the council’s statutory housing obligations. The LATCo will also maintain these properties using council employed staff.

Alarm bells?

• Funding – possibly depending on the arm’s length nature of the funding provided by the council.
• VAT – definitely! The LATCo is providing largely exempt services, but any services including the staffing from the council, will probably be VATable services to the LATCo which the LATCo will potentially be blocked from recovering…. VAT leakage.

LATCO 3 –  A LATCo is set up to provide waste management services initially in the district of the parent council, but with a vague thought that over time the geographical service area might be expanded into neighbouring areas.

Alarm bells?

• Funding – possibly depending on the arm’s length nature of the funding provided by the council.
• Corporation Tax – a mixture of mutual and non-mutual trading.
• Structure – would expansion be via offering neighbouring councils the opportunity to become shareholders or just customers?
• Equipment financing.
• Teckal…

It is important to remember that a LATCo has none of the tax exemptions of the parent council. It is therefore vital to get the right advice to minimise Corporation Tax and VAT leakage.