Should you be worried by the Treasury's plan to target restaurants for unpaid tax? Legal expert Mark Herson explains what HM Revenue & Customs will do and who will be affected
THE PROBLEM I understand that HM Revenue & Customs (HMRC) is targeting restaurants over unpaid tax. Is this something I should be worried about, and what should I be doing?
THE LAW Restaurants trading as a company should be paying corporation tax on their trading profits, and those trading as either self-employed individuals or partnerships should be paying income tax and national insurance (NI) on the same.
Where the turnover exceeds the VAT threshold (currently £73,000) VAT should be paid as appropriate. If the restaurant has employees, even casual workers, it should operate Pay As You Earn (PAYE), so that income tax and employees' NI are deducted from the pay, and employer's NI should also be paid. Income tax should be paid on any benefits in kind paid to employees.
Finally, income tax - and, possibly, NI depending on the circumstances - should be paid on tips received.
HMRC is setting up a number of task forces to undertake intensive bursts of compliance activity in specific high-risk trade sectors and locations. The first task force will target the restaurant trade in London over the coming weeks, with Scotland and the North-west the next areas to be targeted.
EXPERT ADVICE HMRC is aiming to raise an additional £7b each year by 2014-15 by tackling tax evasion, avoidance and fraud, and this is its first step.
It has stated that only those who deliberately evade tax will be targeted and that honest businesses have nothing to worry about. However, restaurants should be absolutely certain that they have correctly declared all taxes and that their accounting records are in order.
It is clear that HMRC has specific restaurants in mind. It would be no surprise if they were looking at fast-food outlets, take-away restaurants and family-owned businesses. Full-service restaurants and chains are unlikely to be the main target.
If HMRC establishes that tax has been underpaid, it will seek payment of the tax, interest and penalties. The penalties will be based on the level of potential lost revenue, the level of disclosure and whether the action was deliberate and concealed.
For restaurants which deliberately evade tax of at least £25,000, HMRC may seek to use its "naming and shaming" powers by publishing their details on its website. In the most serious cases, the penalty could be up to 100% of the unpaid tax and the offender risking criminal prosecution.
If there is any doubt as to whether all tax has been paid, restaurants should contact their current adviser or seek professional help from an accountant or chartered tax adviser who has experience in dealing in HMRC enquiries. Although HMRC is not offering a voluntary tax disclosure facility, it may still be beneficial to make a pre-emptive disclosure.
If HMRC contacts the restaurant, it is advisable to seek appropriate professional help. Restaurants should not deal directly with HMRC themselves.
â- Consider making a voluntary disclosure.
â- If HMRC contact you, seek immediate professional advice.
â- Do not deal with HMRC yourself.
BEWARE! HMRC will have a good idea of which restaurants have not paid the correct amount of tax. Any restaurants that fear they have a tax problem should seek immediate professional advice. This problem is not going to go away.
Mark Herson, tax director, James Cowper