The new alternative business structure set up by Essex County Council will have its scope limited to minimise liability for corporation tax, it has emerged.
The council voted last week to push ahead with an application to the SRA to create a new entity under the name ELS Ltd that will offer services to commercial clients.
A report filed by council officers on the financial implications of the application notes that corporation tax will be payable on profits earned by the ABS and it is therefore ‘imperative’ to allocate work between ESL Ltd and the in-house service.
‘Services will only be provided by the ABS arm of ELS where regulations prevent the provision of such services by the in-house department,’ said the report. ELS Ltd will only undertake work that cannot be undertaken by the in-house service.
‘This because [sic] any net profits generated by ELS Ltd are subject to corporation tax at 20%, therefore to place all trading activity within the ABS would not make commercial sense.’
Essex Legal Services Ltd was formed in 2009 in anticipation of the Legal Services Act but has remained dormant since. The company will now seek to offer legal services to the public sector and to commercial enterprises which are carrying out local authority or other public sector functions.
A spokesman said this could include advising probation services, rehabilitation companies and school academies. The sole directors of ELS Ltd will be Philip Thomson, the council’s director of legal services, and Alex Hallam.
Initial forecasting suggests the ABS will raise an additional surplus of £165,000 in 2017/18 which will rise to £1.8m in 2019/2020.
ELS, which was rebranded in July, specialises in childcare proceedings, health, adult social care, education, employment, personal injury claims, litigation and property transactions.
Subject to approval, Essex will join a select group of local authorities to create an ABS. These include Buckinghamshire Law Plus, a collaboration between Buckinghamshire County Council and Buckinghamshire and Milton Keynes Fire Authority, and HB Public Law, the shared venture between the London boroughs of Harrow and Barnet.