Tens of millions of pounds of overpaid VAT has been helping shore up the budgets of cash-strapped councils, which are facing an unprecedented squeeze due to the cut in public spending.

Some councils are making contingency plans for a cut in up to 15% of their budgets in the coming years. The extent of the first wave of cutbacks will become apparent in the coming weeks and months.

But in recent weeks local authorities have been receiving as much as £5million-plus from HM Revenues and Customs.

The Herald understands some councils are already challenging the sums paid out by HMRC and believe they are entitled to more based on the interest they have received, while health authorities are exploring avenues for rebates.

Already £1.5billion has been paid out by HMRC across the UK to private individuals, companies and corporations and public bodies, with a total of £5bn set aside to deal with all claims.

The pay-outs follow a ruling in the House of Lords last year but relates back to 1996 when the Paymaster General announced in the House of Commons that the existing six-year time limit for the making of claims for overpaid VAT was to be shorted with immediate effect to three years.

There followed a complex series of cases including a ruling by the European Court of Justice that it was illegal to introduce a new time limit for bringing claims for overpaid taxes without transitional arrangements and a House of Lords decision, known as the Fleming case, which resulted in a new transitional period up to March 31, 2009, to submit backdated claims.

It is understood most Scots councils have identified potential areas that would have the chance of successful claims, although they still had to go through historic data pre-dating local government reorganisation in 1996 in a tight timescale to secure a payment.

Glasgow recovered £2.6m in VAT wrongly accounted for on hostel charges from 1974 to 1996, as well £3m in interest.

North Lanarkshire Council identified catering, sporting income and expenses as potential areas to claw back cash, including interest and secured around £2m.

Councillor Robert Burrows, North Lanarkshire’s vice-convener of finances, said: “This was an excellent piece of work by finance and customer services staff resulting in a significant boost to the budget.

“There was only a short period of time for claims to be submitted and a significant amount of information required to support the claim, so we are delighted. This work means the council has an additional £2m to spend.”

South Lanarkshire Council got £2.7m in overpaid VAT, while Aberdeen City Council has clawed back £3.7m. Fife received £3.76m for VAT paid on theatre ticket admissions, leisure centres, libraries and catering, while Falkirk Council has had a HMRC payment of £450,000 and Dundee around £100,000.

Several other authorities contacted by The Herald including Clackmannanshire, Stirling, Borders and Argyll and Bute are awaiting decisions on rebates, while a spokesman for East Renfrewshire said: “We do expect a substantial windfall in due course.”

A HMRC spokeswoman said: “HMRC received a very large number of claims from taxpayers for tax that is said to have been overpaid.

“Past experience of such claims suggests that many will prove either to be speculative, incorrect or otherwise overstated.

“The latest published figures showed that in those cases so far verified by HMRC, around half the amount claimed by tax value had been refused following verification, and around £1.5 billion in tax and interest had been repaid to date. ”