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Operation Gourmet – half-baked and on the rocks

07 March 2006

Nick de Bastarrechea, founder of Hardy's restaurant off London's Baker Street, relates how a lack of communication between the Government's tax-collecting departments forced his restaurant's management company into liquidation.

The saga made Hardy's another victim of the Inland Revenue's legally-flawed Operation Gourmet crackdown on restaurant tronc schemes.

This is the story of my 18-month War of the Tronc with the Inland Revenue. It nearly brought my business to its knees but we won in September 2004 after I unearthed a ruling made in the 1970s - or so I thought!

The Inland Revenue totally backed down on its demands (initially for £100,000) for my alleged ‘interference' in our tronc scheme.

But during the course of the investigation, Hardy's had fallen behind on one quarter's worth of PAYE payments to the Revenue and one quarter's worth of VAT payments to Customs and Excise, totalling around £36,000.

Hardy's had agreed to pay the debt at the rate of £4,000 a month over 10 months. The Revenue's collection heavies, the London Central Recovery Office (LCRO) had accepted and cashed the first three payments.

War was re-declared on 9 December 2004 when Hardy's received a letter from the LCRO cancelling our existing debt agreement and demanding the payment of £14,212.11 within four days.

Naturally, I requested clarification on the very same day in a hand-delivered letter.

Perhaps I shouldn't have been surprised that I received no reply. I innocently thought that maybe the various departments had actually talked to each other.

But, on 21 December at the height of the Christmas season, a recovery executive from the Revenue entered our premises to issue a distraint notice to the value - now - of £32,675.31.

I immediately contacted the LCRO to point out that Hardy's was in no position to comply with their demands nor to alter the arrears payment programme they had agreed.

I urged them to treat the matter with some urgency as, on 31 December, Hardy's would breach its agreement with Customs. The Revenue had placed us in a possibly insolvent position and we could not, legally, be seen to be treating Customs preferentially. Liquidation seemed inevitable.

I sent copies of our correspondence to Customs but 31 December came and went without a sniff of response from any of the three departments. We were now in arrears by a whole quarter's VAT payment even though we had the money. And we were now in breach of our agreement with Customs.

On 15 January, the Revenue wrote to confirm our agreed repayment plan. They asked us to ignore any enforcement letters of distraint. They even apologised.

Three days later, Customs told us we were now in breach of our agreement with them and that, despite the Revenue's incorrect actions, we had just seven days to pay up.

I immediately contacted Customs & Excise yet again to tell them that the Revenue had admitted that they'd acted in error against us. I asked Customs & Excise to bear with us while we put Hardy's back on track to return to the repayment agreement that had been broken by the bizarre actions of the Revenue.

Their answer? No chance!

The rest is history. I had to place my management company into liquidation and all my personal guarantees to the banks were triggered. This was forced on me by the Revenue's ill considered, mismanaged and erroneous actions.

Is the now-merged HM Revenue and Customs actually determined to decimate London's restaurant scene by any means possible?

If we misinterpret the law, the Revenue does not accept apologies but starts with a penalty figure of 100%. The Revenue admits it misinterpreted the law in the case of tronc. Do we have one law for all or not?

Restaurateur wins an 18-month tronc battle with Inland Revenue

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