Be ready for when the taxman cometh
The taxman has turned up the pressure on restaurants to pay all the taxes they owe after it announced last week that it was setting up a taskforce to tackle tax dodging in the sector.
The taskforce is expected to pay a visit to eateries across London, the North-west and Scotland, acting on intelligence gathered by HM Revenue & Customs (HMRC). An HMRC spokesman told Caterer that the visits would start this month but declined to reveal how many establishments the organisation was targeting.
Restaurants are expected to provide rich pickings for HMRC as it zeroes in on a number of industry sectors in a bid to help swell Government coffers. The creation of the taskforce comes as a result of the Government's £900m spending review investment to tackle tax evasion, avoidance and fraud from 2011-12. The Government hopes this will help raise an additional £7b a year by 2014-15.
The HMRC was reluctant to reveal how much of that £7b it expected to squeeze from the restaurant sector, or how it planned to do it. But it did indicate that it would make regular complicance checks on businesses in the first instance, including Pay As You Earn (PAYE), corporation tax, VAT and income tax.
Richard Godmon, tax partner at accountants Menzies, said: "The announcement is clear evidence that the HMRC is turning up the heat on its plans to raise an extra £600m from small businesses over the next four years.
"Businesses which are big cash generators such as restaurants are an easy target for HMRC so they need to ensure their accounting records are kept up-to-date."
In fact, some restaurants may already have attracted the attentions of the taxman without even realising it. "You can expect HMRC officers will have checked out each restaurant in advance, in many cases eating at the premises and collating the data on customer numbers, so the owners of any restaurant would be well advised to come clean on any tax irregularities immediately," John Cassidy, tax investigation and dispute resolution partner at accountancy firm PKF, said.
But before restaurateurs start trembling at the sight of any customer wearing a grey suit and carrying a briefcase, it is also worth remembering that full-service restaurants and chains are unlikely to be the taxman's primary target.
Speaking to Caterer, Mark Herson, a director at accountancy firm James Cowper, pointed out that although the HMRC will want to encourage compliance by giving the impression it is looking at the whole sector, its real focus may be somewhat narrower. "It wouldn't surprise me if they were looking at fast-food outlets, take-away restaurants and family owned businesses," he said. "And particularly those that have a high turnover of staff and use casual labour, because that is where PAYE may not have been properly implemented."
The majority of restaurants will have little to fear, especially if, as accountancy firms are naturally keen to point out, they have employed a reputable adviser to help them with their tax affairs.
And even in the event of being caught out, the prospect of criminal prosecutions against restaurateurs is slim. "What HMRC is trying to do here is minimise the amount of work they do," Herson said. "They offer amnesties and they will say if you come clean and work out the tax that was due, we will tell you what interest rates to apply and we will tell you what the penalty rate is. It could be 10%, it could be 20%."
top tips - how to prepare for the taskforce
â- HMRC will be looking for off-record income, payment of cash wages without deduction of PAYE and/or national insurance contributions and incorrectly recorded private expenditure of the proprietors.
â- Consider a pre-emptive disclosure, if there are any issues that might arise or errors that HMRC might discover.
â- If a written request for copies of business records is received, take advice on ensuring adequate compliance with the notice but without providing more than HMRC is entitled to.
â- If HMRC demands to make a visit to inspect the business premises, make sure an advisor is present to ensure the officer does not exceed their rights.
David Pedley, senior manager, national tax investigations, at Grant ThorntonBy Neil Gerrard
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