Restaurant businesses in the UK could be owed up to £50m in refunds and compensation by HM Revenue & Customs (HMRC), after fundamental errors were exposed in its E24 guidelines on tronc, Caterer has learned.
Conran Restaurants‘ recent successful appeal disputed the HMRC's claim for an estimated £3m in backdated national insurance contributions. Conran's victory has forced the Revenue to concede it made mistakes in its interpretation of the legislation and withdraw its E24 guidelines for a second time.
Tronc expert Peter Davies, of tax consultancy Vantis, estimated businesses could be owed up to £50m in refunds and compensation, as many other Revenue judgements could now be questioned.
During the Revenue's 2003 crackdown on the catering industry, code-named Operation Gourmet, many businesses were found to have mismanaged their tronc systems.
Huge sums in backdated taxes were subsequently claimed by the Revenue, forcing a number of restaurants into liquidation.
Speaking at the Vantis Hospitality Seminar in London last week, Davies said: "It is not just backdated national insurance that should be compensated.
"Businesses that were investigated should claim for interest on the fines and compensation for professional fees incurred. Operations that were not investigated by the HMRC but changed practices also have a case."
But Davies warned that the Revenue didn't like losing. "It has received a very public bloody nose over this, but this should not deter businesses that have genuinely paid incorrectly from seeking compensation."
However, Alain Lhermitte, owner of Mon Plaisir in London, whose restaurant went into liquidation after a Revenue investigation demanded £400,000 in backdated national insurance payments, said he would not be seeking a refund.
"When they want to screw you, they will," he said. "The problem can be solved only by making the tronc system clear, but it's still as unclear as it was before."
Andrew Mathieson, leisure and tourism adviser at HMRC, admitted: "Refunds will be due in appropriate cases based upon individual scenarios but it's impossible to put a figure on it.
"Some businesses that relied on E24 may be entitled to a refund because the change in interpretation means there may be less NI liability than before."
Mathieson added the leisure industry would always be at the top of the risk pyramid for tax gathering because it was disparate, dominated by small business dealing with cash and because there was a high risk of failure.
How to claim
- If there was a previous investigation, write to the original office
- For general refunds, write to HMRC, National Insurance Contributions Office, Refunds Group, BP1001, Benton Park View, Newcastle upon Tyne NE98 1ZZ
- Seek professional advice
- Resist attempts by HMRC to reopen old investigations
By Emily Manson