THE rebranded careers service in York and North Yorkshire could lose more than £600,000-worth of funding.

Connexions York and North Yorkshire, which was set up only 18 months ago, may have to cut services to teenagers, after the Government said it would not help to pay the organisation's VAT bill.

The only way to avoid the massive bill is to change the way the body is structured - but it has only two months to do this before cutbacks will start.

The problem has come about because Connexions has been landed, from April 1 this year, with having to pay VAT - which in the case of York and North Yorkshire comes to £900,000.

The Government had previously agreed to pay for at least 95 per cent of Connexions' VAT bill for two years.

But in February this year it said it would only pay 30 per cent of VAT bills, leaving Connexions in York and North Yorkshire looking for £630,000.

If the organisation changes the way it is structured it will not be liable for any VAT, nor will it be able to reclaim it.

Currently it is structured as a small company, which receives the funding, and then the services it provides are sub-contracted to local authorities, the careers service, and other organisations.

If changes are made so it is run by either City of York Council or North Yorkshire County Council, it can then avoid the added costs.

In a report to City of York Council's ruling executive its assistant director of education, Murray Rose, says the changes have to be made quickly or the cuts will have to be made.

Mr Rose said: "If the lead body is not established by 30 June, then the board would have to begin to cut service delivery in the region."

The executive meeting will take place in the Guildhall, next Tuesday, from 2pm.

Updated: 10:45 Tuesday, April 13, 2004