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Written by Aileen MacNicol
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Friday, 22 January 2010 09:21 |
AN ongoing tax dispute which could see Western Ferries having to pay out over £2 million has raised questions over the company’s ability to tender for the Dunoon-Gourock route - although these are refuted by Western’s MD, Gordon Ross.
Since 2004, Western has elected to pay tonnage tax, which is based on the size of its vessels, rather than corporation tax which relates to profits.
However, HM Revenue and Customs (HMRC) is in dispute with the company over whether it should in fact be paying corporation tax – and if this is deemed to be the case, then Western faces a bill in back taxes of around £2.1 million.
When the tender for the Dunoon-Gourock ferry service was advertised at the end of last year, Western signalled its interest in bidding, although indicating that this may be on a passenger-only basis.
However, local campaigners have raised concerns that the continuing tax dispute throws doubt on Western’s ability to bid.
Professor Neil Kay, a recognised expert on the economics of ferry services, told the Standard: “A clause in the public contract for the tender says that all candidates will be required to produce a certificate or declaration demonstrating that they have fulfilled obligations relating to the payment of tax.
“This situation raises a number of public interest issues, not least the question of why HMRC has allowed this situation to drag on for so many years.”
The Western Ferries tax tale has attracted the attention of the national media, with an article in the Herald this week adding further fuel to the fire.
In the piece, published on Tuesday, MD Gordon Ross said: “Our tax position has nothing to do with our expansion plans and it will not in any way block us.”
The Herald also quoted Mr Ross as saying: “We wouldn’t necessarily bid through Western Ferries (Clyde)...irrespective of which vehicle we use to make our bid, I still don’t think there will be any issue over our tax situation.” The article suggested that a bid for the route may possibly be made through another company.
However, Gordon Ross told the Standard that this was a misquote, and affirmed his view that Western could satisfy the obligations demanded by the tender.
“We have fulfilled our tax obligation – we have submitted annual tax returns and paid our tax liability through tonnage tax,” he said.
“The only outstanding question is whether we are allowed to elect to pay tonnage tax as opposed to corporation tax, and that will be determined at a hearing with special commissioners.”
Mr Ross has previously been quoted in the national media as saying that HMRC has insisted that Western pay corporation tax.
Regarding the issue of Western setting up another company for the purpose of submitting a Dunoon-Gourock bid, he responded: “I don’t know where that came from - it’s a misquote.
“There is no reason why Western would tender using another company. We could do it if we wanted to, but there is no need for us to do so, and it is not something we’re planning to do.”
Asked about the implications for Western if it finds itself having to pay out the £2 million, Mr Ross said that the company could withstand such a bill, adding: “If we’d been subject to corporation tax we’d have been paying it anyway.
“This amount may seem huge, but it’s an accumulation, and it hasn’t come from nowhere. If we are unsuccessful [at the hearing] we will have to pay.”
The sum of money involved may well be an accumulation, but the difference between corporation and tonnage tax is considerable.
Western Ferries’ most recent accounts lodged with Companies House (for the period to 31 March 2008) show that the company’s pre-tax profit was £1,637,000 and turnover was almost £6.1 million. However, just £1,000 in tax was paid as a result of the company’s decision to pay tonnage tax.
A note attached to the accounts from the company’s auditors states: “If corporation tax were to be payable, an amount of £585,000 would have been provided. The total corporation tax payable should the tonnage tax election not be accepted would be £2,092,000 at 31 March 2008.
“The company has taken legal advice on this matter and is confident of its position.”
The company’s most recent accounts are expected to be made publicly available over the next few weeks, if following a similar schedule to that of previous years.
The reasons for paying tonnage rather than corporation tax extend beyond the financial, and the reasons for the dispute are myriad, but one of the key factors is whether Western’s vessels can be considered as sea-going ships.
The UK Finance Bill 2000 states that vessels excluded from qualifying for tonnage tax include river ferries used for estuary or river crossings.
The UK Finance Act 2005 further requires that to qualify for tonnage tax, activities must be carried out ‘at sea’ and this will not include any activities carried out in a port or harbour or in an estuary, a tidal or other river or any inland watereway.
The waters in which the company operates are classed as Category C - “tidal rivers, estuaries and large, deep lakes and lochs where wave height is unlikely to exceed 1.2 metres.”
Cowal Ferries Ltd, the company which operates CalMac’s Dunoon-Gourock service in similar waters, pays corporation tax - a point not lost on Professor Kay, who notes: “On the face of it, would seem that Western’s claim for eligibility for tonnage tax is negated by their operating in an estuary, and this point would appear to be supported by the authorities, as Western have stated themselves in 2008.”
He concluded: “Who produces the certificate or declaration of fulfilment of tax obligations? Is it Western or is it the tax authorities?
“Either way, there would be major questions to answer, and it is in crucial public interest that this be resolved as soon as possible.”
Mr Ross advised that a hearing with special commissioners, to determine whether Western Ferries is liable for corporation or tonnage tax, will take place within the next few months.
As the Standard went to press, Mr Ross provided a copy of confirmation from the Scottish government that there would be no reason to exclude a Western bid, as the tax dispute is ongoing and the company has not been found to have failed in its tax obligations.
Mr Ross added: "This claim by the local anti-western campaigners is pitiful. I notice that they have made no mention of CalMac's ability to tender, based on the fact that the recent EC decision states that CalMac have failed to produce accurate or transparent accounts and moreover that they have been operating in clear breach of European regulations."
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Last Updated on Tuesday, 26 January 2010 21:45 |
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