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Funding shortages have hit local authority run extended schools and children’s centres because they are not automatically exempt from VAT, a conference heard, writes Amy Taylor.

Speaking at a conference on childcare and regeneration, Julia Gault, assistant director of the Sure Start Unit, said early years, chilcare and extended schools were not automatically exempt from VAT, unlike statutory services, because there was no legal requirement to provide these services and therefore different rules applied.

She said she knew of “various local authorities” that were having difficulties. These happen when councils exceed the limit on the amount of VAT that is allowed to be disregarded for them by tax officials.

A delegate from Gloucester Council said that the local authority had worked out that the problem could cost them over £1m. She said she had sent a letter to children’s minister Margaret Hodge six months ago outlining the issue but was yet to hear back.

Gault said that the Sure Start Unit was lobbying the Chancellor and that she hoped some measures to ease the situation would be contained in this summer’s Spending Review. However, she added that part of the problem was due to EEC VAT rules.