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So why does the taxman always pick on us?

09 February 2006

The industry needs to take action to avoid becoming shark bait for the HMRC, argues Peter Davies, a former tax inspector and now a consultant at Vantis Tax.

Just as the tronc issue begins to settle down, HMRC decides to shift its target to another aspect of business - meaning more enquiries and possible demands for arrears of taxes from hard-pressed businesses. Why, might people ask, does it always seem as if it's our industry in the Revenue's spotlight?

Let me repeat a quote that I read (and quoted extensively as a tax inspector) a couple of years ago: "Some [people in the hospitality industry] still run their business with the aid of numbers biro'ed on bits of paper, random amounts of cash, late-night backhanders, flaky invoices and other examples of the dim and the dubious. These people are going to have to grow up, get a proper set of accounts, run their payroll like a business instead of a hobby, and sort out their finances".

You might think that this was a quote from the Revenue. But it came from the former editor of a hospitality trade magazine. Now you might look at the way in which you run your business and think this is grossly unfair, but unfortunately there are many other businesses out there that fit the bill only too well.

Think of the Revenue as a great white shark. It's big, it can move very quickly when the mood takes it, it has a voracious appetite and it can spot a good meal a mile off.

Your tax inspector is always on the lookout for businesses that might not have "grown up" and once he spots a good source he will keep coming back for more. When inspectors visited restaurants and, time and again, find the same problems cropping up, they start to form the view that these aren't isolated instances but are symptomatic of an industry-wide problem.

Tronc was a perfect example. Leaving aside the absence of any real HMRC guidance prior to the first E24 booklet and the subsequent changes of mind (of which we may not have seen the last), it's true to say that at too many businesses the systems in place were inadequate or, at worst, blatantly outside what HMRC considered acceptable.

For the vast majority this was due to ignorance rather than anything more sinister, but HMRC had found what it considered an excellent feeding ground and promptly leapt in. Even now, after everything that has happened, I still meet businesses with no idea of what the basic do's and don'ts are.

Here's a quick example - every week there are dozens of jobs advertised promising tronc as well as salary. The tax inspector looks at these. Any business advertising in these terms may as well invest in a large neon sign saying "Investigate Me!!"

So what's the answer? Invest in high-quality professional advice from day one. Get things right, keep things simple and transparent, keep proper records and audit trails, and reduce the amount of tax which both you and your employees pay in ways that won't cause you a problem later.

Good advice costs money (which may be tight) but the consequences of getting it wrong are much, much greater. Many businesses have learnt this to their cost. Without a cage, you are just another prospective meal for a hungry shark.

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Jacobs Media Group is honoured to be the recipient of the 2020 Queen's Award for Enterprise.

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