A review of tax at Northern College in Aberdeen has produced a Pounds 20,000 windfall that may have repercussions throughout the country.
College finance managers have been successful, with the help of auditors from Price Waterhouse, in persuading Customs and Excise to quash payment of VAT on lecturers seconded by local authorities to work in the college.
The college has been paying unnecessary tax for years but has now received back payments from the former councils in Grampian and Tayside.
Alan Wright, the college's finance manager, said: "We saw the legislation had changed and that staff seconded from local authorities to educational institutions for teaching duties should not be charged VAT because it is a transaction between 'eligible bodies'.
"We alerted Price Waterhouse to this. We got agreement from the local authorities that this has been an error."
Both local authorities and colleges and universities are seen as "eligible bodies" for the purposes of VAT. In a case where the main work by a college or university is exempt from the tax and the teaching given by secondees from the local authorities is for students who receive exempt education, the accountants took the view that the supply of staff from one eligible body to another should be exempt.