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Back in May of this year HMRC announced that the newly created tax evasion task force would be targetting the restaurant industry. The first point of focus was to be London, followed by Scotland and the North West, and then the rest of the UK over the course of 2012.
It is now six months on and we are starting to hear the first reports concerning the levels of unpaid tax identified in London and Scotland. According to recent reports in the Telegraph (2nd November 2011) unpaid tax of £634,050 has been identified across 45 cases; the majority of which have arisen in Scotland.
So why has HMRC chosen the restaurant trade as the first target for the task force? The restaurant trade has always been a good source of work for HMRC due in part to the problem of employees being paid in cash off the books and the failure to declare tips to HMRC. It is also easy for HMRC to apply a simple business economics model to determine whether they need to look closer at a particular business by calculating what the turnover should be based on the level of purchases made.
Another common technique used by investigators is to sit in a restaurant, order food and pay in cash. The investigator will then conduct a compliance visit, as a part of which he will check to see whether or not his cash order has been recorded in the books. But dining at a restaurant is not just a free meal for the investigator, whilst he is there he will also count the number of customers in the restaurant so that he can check whether all those sales have been recorded and take note of the number and names of staff to check against the PAYE records.
So what can you do if you become the subject of a HMRC compliance check? First of all HMRC will notify you of their intention to carry out a check and should identify whether there is a specific aspect of your business's tax affairs that they are looking into. They may ask you to supply documents and/or information, or they may notify you that they intend to visit your premises. Whichever approach HMRC takes you should be prepared to co-operate fully with all reasonable requests and if you have any concerns you should speak immediately to your accountant or another tax professional.