Restaurateur to take action over Revenue tronc blunder

28 September 2006
Restaurateur to take action over Revenue tronc blunder

A Chelsea restaurateur is considering suing HM Revenue & Customs after its mistake on national insurance contributions forced his business into liquidation and cost him an estimated £100,000.

Stephen Glaister, owner of Glaisters, is seeking compensation from HMRC after it admitted its demand for £101,524 backdated national insurance in March 2004 had been wrong.

"When we got the demand we just couldn't go on," he told Caterer. "On legal advice, we put the company into liquidation and made 10 people redundant. We went from three restaurants to one and it destroyed 20 years of building a reputation."

The judgment was based on HMRC's misinterpretation of E24 guidelines on tronc (below), but it has refused to accept liability.

It said: "The original decision was based on legal advice received at the time. The revised opinion (on E24) follows further legal advice and is not an error on the part of HMRC, so compensation is not appropriate."

This stance has angered Glaister. "We had to take our children out of school, I've not had a salary since and I've suffered severe emotional stress," he said. "To claim they haven't got the authority to compensate is absurd."

Glaister's claim has been taken up by Peter Davies, hospitality tax expert at consultancy Vantis, who is making representations to the parliamentary ombudsman and considering legal action.

"This is one of the worst examples I've seen of an individual suffering financial loss because of HMRC's actions," Davies said. "The Revenue's position is wrong, unfair and untenable. The change in HMRC's view was not due to new legislation, or any court decision but to a realisation that its previous stance had been wrong."

Davies estimated Glaister's financial loss at between £80,000 and £100,000. He argued HMRC was contradicting its own compensation code of practice, which includes payouts for professional fees, delays and personal distress.

"This is not some big company, this is a small, family-owned business and Stephen has suffered a significant financial loss because of HMRC's mistake," he said. Almost any other business would be expected to compensate him, as these losses were in no way his fault."

The current E24 Tronc Guidelines

HMRC is expected to reissue its E24 guidelines on tronc imminently, following its admission of misinterpretation
in February this year.

But currently the law on tronc says:

  • Tronc money paid through the main payroll can count towards the national minimum wage even if it has not been subject to national insurance.
  • Tronc money used to top up the level of pay will not automatically be subject to national insurance contributions (NICs).
  • Pay rates (before counting tronc through the payroll) may be set below the minimum wage.
  • NICs will be due if an employer directly allocates gratuities to its employees.
  • Directors, proprietors and partners cannot act as troncmasters.
  • NICs will be due if the contract of employment specifies an amount, or minimum amount, of tronc to be received.

By Emily Manson

E-mail your comments to Emily Manson here.

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