THE Scottish Government was told in August 2011 the new single police force would have to pay millions in VAT unless they amended the funding structure.

Letters show officials knew before the public consultation on the merging of the country's eight police forces about the VAT liability, and were told over the following months that paying it was avoidable if the structure of Scotland's new police service was slightly amended.

However, officials refused and instead asked HMRC to amend the legislation to avoid £22 mil-lion-a-year VAT bill.

Correspondence extracted using the Freedom of Information Act reveals that officials were told on August 15, 2011, the stipulations for VAT exemption are strictly enforced and that in general, public bodies "have no right to recover VAT".

The letter asks for more details from officials, but says the two stipulations for exemption are bodies that conduct activities normally "carried out by local government" and have the "power to draw their funds directly from local taxation".

It refers to the unsuccessful legal challenge of the National Crime Squad on VAT exemption but implies there was still time to make the new service compliant by drawing some funding from local taxation. It took until December for Scottish officials to respond.

Publicly, the Scottish Government said repeatedly they were hoping to resolve the issue. But another letter on February 7 this year from the Treasury makes clear there was no possibility of exemption or a refund.

Dave Watson of Unison Scotland said: "It is now clear the Scottish Government understood the VAT exemption would be lost before the September consultation that set out their preferred option of centralisation. Less than transparent, more a case of burying bad news. The Scottish taxpayer will now pay the price."

Unison said 3200 civilian staff could be cut. Senior police say the figure is 2000.

A Scottish Government spokeswoman said: "At no time during the development of proposals for reform did we know VAT would not be recoverable. We included the possible loss of VAT in our calculations as a responsible and common sense measure. As result of this decision by Treasury, Scotland's police and fire and rescue services will be the only ones in the UK which cannot recover VAT.

"This model for single police and fire services and approved by the Scottish Parliament was chosen because it is absolutely the most efficient and effective, delivering savings of £1.7 billion over 15 years, even without VAT recovery. Introducing other measures purely to enable the recovery of VAT would bring back a level of bureaucracy establishing single services aimed to reduce."