HMRC dining out on tax evasion among restaurants

HM Revenue and Customs (HMRC) is forging ahead with plans to tackle tax evasion in the restaurant and takeaway sector.

The sector has been a prime target for the UK tax authority, with more than a quarter (26%) of cases listed on its quarterly ‘deliberate tax defaulters’ roster operating as restaurants or takeaway businesses.

There has been a string of recent cases involving restaurants and takeaway outlets defaulting on their tax obligations. An Indian takeaway in Luton was discovered to have unpaid taxes worth £413,000, facing HMRC fines of £310,000. Meanwhile a Chinese takeaway firm in Bangor defaulted on its taxes between 2012 and 2016, owing £158,000 to the Exchequer.

Recent analysis of the UK restaurant sector by BDO found that eateries are more likely than several other sectors to under-declare income due to their high percentage of cash transactions.

As margins continue to narrow and intensify for restaurateurs, the temptation to improve profits increases by avoiding paying VAT, for example.

HMRC has also been made aware of an electronic card payment network utilised by some unscrupulous restaurants and takeaways that doesn’t create an audit trail of payments, making tax evasion easier to facilitate.

Cash tips are also a prime target for HMRC tax investigations in the restaurant sector. Restaurants that fail to operate a tips scheme correctly or misreport the way tips are shared are at greater risk of being investigated by the taxman.

Dominic Arnold, partner, BDO, said: “HMRC has a range of taskforces now focused on investigating the restaurant industry [in the UK].

“The use of taskforces has proved very effective in the past and businesses need to be aware HMRC is going to continue to throw this kind of concentrated effort at the sector.”

The UK’s restaurant sector is not alone in being targeted in anti-avoidance schemes by HMRC. The Let Property Campaign is still targeting undeclared income from residential landlords.

An HMRC spokesman said: “We will continue to make sure that every business, no matter their size or industry, pays all the taxes due under UK law and we won’t settle for less.

“Tax avoidance doesn’t pay. People can end up paying more than they were trying to avoid in their misguided attempts to save money.”

The costs linked to an HMRC tax investigation can be devastating to small businesses – even if you are successful in defending yourself against HMRC.

That’s because you cannot recover costs from the tax authority, whether you win or not.

At TaxAsssist Accountants, we offer a Fee Protection Service, which covers the cost of any accountancy work your TaxAssist Accountant has to undertake towards an HMRC investigation.

This gives you peace of mind that you won’t be out of pocket and your TaxAssist Accountant will do everything in their power to assist the investigation and resolve it as quickly as possible.

For more information on our Fee Protection Service, call your local TaxAssist Accountants branch today on 0131 665 0771 or drop us a line using our online enquiry form.

Date published 24 May 2019 | Last updated 24 May 2019