Edinburgh Tram-affected businesses face being taxed on compensation

Published on Friday 19 February 2010 21:40

BUSINESSES affected by Edinburgh's tramworks face having to hand back part of the compensation they won from a hardship fund after Inland Revenue chiefs launched an investigation into the scheme.

The Scotsman can reveal the capital's tram company has been ordered to hand over details of payouts of up to 4,000 that were awarded two years ago.

Some 1.6 million was paid out to small firms along the tram route that could prove their business had been affected by tramworks. It is thought Her Majesty's Revenue and Customs (HMRC) is also pursuing businesses which have been able to claim rebates on their business rates from the impact of the works.

The Scotsman has learned that neither tram firm TIE nor the city council alerted HMRC to the creation of the compensation scheme, while businesses were not told that the payment was taxable. TIE was approached last spring for details about the scheme and asked for details of who benefited in November.

TIE last night insisted that taxation matters were solely between businesses and HMRC, but added that it was "clearly targeted" at helping small businesses.

But TIE officials have now warned businesses they are legally obliged to hand over their details after taking legal advice over the grants, which were never described as compensation.

However, tax experts believe business owners are almost certain to be pursued for the unpaid taxes and will almost certainly be fined for failing to declare them.

The small business support scheme was open to firms who paid business rates under 28,000 per year. They had to be based within 100 metres of tramworks.

A letter issued by TIE to shopkeepers within the past few days stated: "As a business owner that received financial support from us through the above scheme, I am writing to inform you HMRC has issued TIE limited with a statutory request for us to provide them with access to the names of all those businesses that received a payment from the small business support scheme. I am keen you are aware of this as soon as possible."

One shopkeeper on Leith Walk, who asked not to be named, said: "It is unbelievable we weren't told these payments were taxable at the time. This scheme was supposed to be groundbreaking and yet no-one has thought to check whether the grants were taxable. It's another hammer blow for businesses hit by the trams."

A spokeswoman for TIE said that all businesses were asked for proof they were registered with HMRC to ensure they were a valid trader: "As soon as HMRC declared an interest in the small business support scheme, we contacted each recipient to advise them that their details had been requested by HMRC.

"All applications to the scheme when it opened were submitted to an independent accountancy company who decided on the validity of each request and processed them."

Mandy Haeburn-Little, director of customer services at TIE, added: "This was a scheme that was clearly targeted at supporting small business owners. While taxation is solely a matter between HMRC and the individual businesses, we would hope it is recognised that the scheme was aimed at assisting businesses."

No-one from HMRC was available to comment yesterday. Graham Russell, of Edinburgh Chamber of Commerce, declined to comment, despite having been involved in the creation of the scheme.

TIE letter a 'complete surprise'

ALAN Rudland, vice-chairman of the Leith Business Association, said the letter from TIE had come as a "complete surprise".

Mr Rudland, who has an imaging shop in Leith Walk, said: "As far as I was concerned this was a capital injection. This was the first suggestion that it should have been registered with HMRC. There was never any indication at all that it was taxable from TIE or the council, which made great play of how unique and innovative the scheme was.

"It would've been nice if they had actually checked it out with HMRC beforehand."