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Tax people

David Young has recently joined Berg Kaprow Lewis where he will be offering tax consultancy to other professionals. David was formerly a director of direct tax at WJB Chiltern.

Waiters' tips

The European Court of Human Rights has recently ruled that tips paid by cheque or credit card are the property of the employer, and can form part of the basic staff wage in Nerva and others v United Kingdom. This could have serious tax consequences for the hospitality industry, according to PricewaterhouseCoopers.

The waiters claimed that their employers had acted unfairly by using tips to pay staff salaries instead of handing them out as additional cash. The European Court of Human Rights found in favour of the employers, stating that tips paid by credit card or cheque are made out to the employer and are therefore their property which can be used to pay staff. As a result of this ruling, non-cash tips held and distributed through a 'tronc system' could now be subject to National Insurance contributions where previously none was paid. Steve Camm, tax director, PricewaterhouseCoopers says that employers face a 'potentially huge National Insurance bill', and adds that the Revenue can look to recover these unpaid taxes going back six years. He urges employers who are likely to be affected to 'plan for any additional liabilities'.

Approval received

The European Commission has approved the Government's new community investment tax relief designed to improve access to capital for small businesses, business start-ups and community projects in disadvantaged regions throughout the United Kingdom. The Commission has concluded that the scheme is either outside the scope of the European Union's state aid rules or is compatible.

The community investment tax relief is available to corporations and individuals who invest in specialist financial intermediaries, i.e., community development finance institutions. These financial intermediaries will pass on the collected funds to small and medium-sized enterprises and charitable projects in disadvantaged regions of the United Kingdom.

The European Commission assessed whether there was any state aid in the scheme either for the final beneficiaries, the financial intermediaries or the investors. It concluded that at investor level as well as at the level of the final beneficiaries no aid was involved within the meaning of Article 87(1) of the treaty.

At the level of the financial intermediaries, the Commission considers the measure to favour certain undertakings within the meaning of Article 87(1). However, the aid is considered to be legal because it is restricted to the minimum incentive necessary.

(Source: European Commission press release dated 2 October 2002.)

CTSA penalties

A penalty loophole in the corporation tax self-assessment régime was discussed by Keith Gordon in a Loose End in Taxation, 17 January 2002 at page 365, and in his article 'Penalty Loophole', Taxation, 23 May 2002 at page 215. It transpires that the Revenue has recently been writing to some agents and concluded that the matter can only be resolved now by the Commissioners. In most cases, it has been suggested that the Special Commissioners be appealed to, although one has been listed before the General Commissioners.

The Inland Revenue's current view is that there is an anomalous reference in the legislation, but that the purpose of the legislation ensures that the higher penalties are payable. A leading tax set of barristers has estimated that it could take on the case for between £1,000 and £1,500 plus VAT. If the Revenue were to pursue the matter through the higher courts, should the Special Commissioners side with the companies, costs would be considerably higher. Keith Gordon has therefore suggested that a fighting fund be set up to cover these costs.

Any readers interested in contributing to a fighting fund should contact Keith Gordon by e-mail: keithmgordon100@yahoo.co.uk.

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