A WINDFALL from the taxman will plug the gap left by the Icelandic banking crisis for town hall chiefs in Burnley.

Finance bosses are expecting a payout totalling £800,000 from Her Majesty's Revenue and Customs (HMRC) for charges wrongly made on sports and cultural services in the 1970s.

But the rebate will be mostly swallowed up by a reserve created to offset the costs of a £1million deposit lost by the council when Landsbanki folded in September 2008.

Finance head Nick Aves said in executive report that the council had submitted a number of claims to HMRC in relation to overpaid VAT.

This follows a test case last year when it was established that the taxman could be pursued for charges wrongly levelled against local authorities dating back 30 years or more.

Mr Aves added: “The claims are based on VAT charged on income for sporting courses and cultural facilities which HMRC demanded, but which should not have been paid.

“These claims have now largely been accepted by HMRC, although some points of detail await finalisation.

“It is anticipated that the sum that will be repaid will be at least £800,000.”

So far no return has been forthcoming from administrators following the Landsbanki collapse, although Burnley council is continuing to pursue the matter through the Local Government Association.

Mr Aves said it was “extremely unlikely” the deposit would be repaid in full, even though some progress had been made.

Previously a £181,000 reserve had been established, to meet the shortfall, and councillors are being asked to ‘top up’ the fund with the anticipated VAT windfall.

If any receipts are forthcoming from Landsbanki then they can be diverted to particular budgets or capital projects in future years, added Mr Aves.