Exclusive: Taxman to raid payouts from new jobs fund

Ministers promised the Regional Growth Fund would help those areas hit hardest by the withdrawal of public sector spending.

But the Yorkshire Post can reveal the Government has told firms that win a slice of the £1.4bn to treat it as taxable income.

This means corporates face paying 26 per cent tax on money awarded from the fund, which was set up to help to save and create private sector jobs and jump-start growth.

The decision has prompted outrage from business groups and Opposition MPs who have already complained the process of bidding for cash has been too bureaucratic and the pool of money too small.

Margaret Wood, regional chairwoman of the Institute of Directors, compared the Government with the Sherriff of Nottingham and said treating the monies as income was a “double whammy for taxpayers”.

“This is taxpayers’ money that has been taxed and now they are saying they will tax it a second time,” she added. “The growth fund is there for growth but it is inhibiting growth rather than stimulating it.

“If the Government is serious about encouraging growth it should think about encouraging business not stifling it with punitive measures such as this.”

A spokeswoman for the Department for Business, Innovation and Skills (BIS) denied the decision to treat the money as taxable income amounted to punitive or double taxation.

But Richard Tuplin, chairman of the East Yorkshire and Humber Institute of Directors (IoD), described the move as a typical case of “giving with one hand and taking with another”.

“It is disappointing that the Government could not see that this would be an investment and not tax this funding as income,” he said. “Companies successful enough to win growth fund money will make more revenue and employ more people which would in turn lead to additional income for the revenue.”

Kenton Robbins, regional director of the IoD, said successive governments have ordered that such funding be treated as taxable income. He said the public “would be pretty upset if they found that nearly £300m of that £1.4bn would actually go back in tax” and called for a wider debate on the taxation of regeneration funding.

Labour MP Gordon Marsden, the Shadow Minister for Regional Growth, said he would be seeking urgent clarification from the Department for Business, Innovation and Skills on the issue.

The Government claims the fund will help to create hundreds and thousands of jobs, lever in private sector investment and narrow the North-South divide.

Yorkshire won seven bids worth £46m in the first round of funding and 24 bids worth £143m in the second.

It is difficult to say how much tax income this would generate for HM Revenue & Customs as not all successful bids were from corporates.

A spokeswoman for BIS said: “It’s misleading to say that treating Regional Growth Fund as income is punitive or double taxation.

“What needs to be taken into consideration is the fact that investments being made through the Regional Growth Fund will unlock additional tax allowances that will reduce the tax burden on the beneficiary. Furthermore, where the fund is supporting businesses through loans or to a public body for infrastructure projects, no tax will be paid.”

YORKSHIRE PROJECTS IN LINE FOR £189M

Yorkshire has been allotted a total of £189m in taxpayers’ money from the £1.4bn three-year Regional Growth Fund.

Ministers claim the 31 projects to receive money will create 10,700 direct jobs and 16,400 supply chain jobs.

The funding represents a small fraction of the £330m a year that was spent by Yorkshire Forward, the regional development agency.

Coalition Ministers axed the RDAs because they were wasteful and unaccountable to the public and failed to close the North-South divide.

Opposition spokesman Gordon Marsden MP said last night that the replacement fund was too small.