HMRC said it is organising specialist teams to undertake “intensive bursts of compliance activity”, starting in the coming weeks with restaurants in London before moving on to Scotland and the North West.
The task forces are a result of the Government’s £900m spending review investment to tackle tax evasion, avoidance and fraud from 2011/12, which aims to raise an additional £7bn each year by 2014/15.
The initiative is part of HMRC’s broader work to tackle evasion and avoidance. Compliance activity targets the highest-risk cases in various sectors and locations, typically focusing on groups of up to around 600 customers in specific locations.
According to accountants Saffery Champness, restaurants must be prepared for an in-depth examination of their operations.
“HMRC has a huge amount of data relating to businesses up and down the country and will be able to compare the exact costs and profit margins, per meal, between different businesses across the country. They will be able to assess whether one Italian restaurant makes a lower margin on four cheese pizza sales than another one in the same area – and that very fact can lead to a business being targeted for a tax investigation,” said Ronnie Ludwig, partner in Saffery Champness.
High risk sectors
Trade sectors and locations where there is evidence of high risk of tax evasion will be top of the agenda, with the first task force focusing on restaurants in London over the coming weeks, said HMRC.
“The restaurant trade in Scotland and the North West will be the next areas targeted.”
HMRC said it is planning a further nine task forces in 2011/12, with more to follow in 2012/13.
“These task forces are a new approach which uses HMRC’s resources to identify and tackle rule-breakers and evaders swiftly and effectively,” said Mike Eland, Director General Enforcement and Compliance.
“Only those who choose to break the rules, or deliberately evade the tax they should be paying, will be targeted. Honest businesses have absolutely nothing to worry about.
“But the message is clear – if you deliberately seek to evade tax HMRC can and will track you down, and you’ll face not only a heavy fine, but possibly a criminal prosecution as well.”
Ludwig cautioned that restaurant managers need to ensure all financial records are up to date, with proper records of all transactions.
“The taxman is likely to want to see cheque stubs, till rolls, sales and takings records and a raft of other documentation to ensure that transactions are taxed and recorded correctly,” he said.
One area where restaurants need to be particularly vigilant is tips, which have been historically undeclared for tax purposes.
"HMRC is clearly toughening its stance on cash payments, so both restaurants and waiters can find themselves under the spotlight," said Ludwig.
“A restaurant must have a dedicated troncmaster, who is responsible for sharing out tips amongst the restaurant staff, waiters, maître d’s and cooking staff. A second part of the role involves administering PAYE on the total amount of tips – deemed to constitute taxable supplementary remuneration. However, individual waiters often handle their cash tips personally – in which case they would have to declare the amount received in tips over the course of the tax year as supplementary earnings on their tax return."