HMRC is continuing its campaign of targeting restaurants and takeaways as financial stress makes tax evasion more tempting for smaller operators in the sector.
According to business advisory firm BDO, restaurants and takeaways make up 26% of businesses ‘named and shamed’ by HMRC as ‘deliberate tax defaulters’ since they began publishing the list in December 2017.
Restaurants are believed to be more likely than most businesses to under-declare income due to the high volume of cash transactions they process.
With margins now under intense pressure in the restaurant industry, the temptation to improve profits by avoiding VAT or payroll taxes has risen.
HMRC is also aware of an electronic card payment system used by some restaurants and takeaways that does not leave an ‘audit trail’ and could facilitate tax evasion.
Examples of UK restaurants ‘named and shamed’ by HMRC recently include a Chinese takeaway business from Bangor which defaulted on taxes worth over £158,000, between 2012 and 2016, and faces fines of £77,000, and an Indian takeaway in Luton that defaulted on taxes worth £413,000 and faces fines of £310,000.
Meanwhile, a pizza restaurant in Middlesbrough defaulted on tax of £60,000 and face fines of £27,000.
HMRC has been particularly active in the pursuit of lost tax through tips, which can be difficult for it to monitor. If a restaurant is operating a tips scheme incorrectly or misreports its tips, HMRC can seek any unpaid tax along with interest and penalties.
BDO says that a failure to comply with regulations surrounding the reporting of tips could result in a business being investigated.
Historically, HMRC has set up a series of specialist taskforces across the UK to investigate the tax affairs of restaurant and takeaway businesses.
Dominic Arnold, Partner at BDO, said: “HMRC’s crackdown on tax evasion and avoidance continues with gusto and remains high on the government’s agenda. This is a way of both reducing the tax gap as well as gaining public trust in the fight against tax evaders.
“HMRC has a range of taskforces now focused on investigating the restaurant industry. 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.”