HMRC is ramping up a campaign targeting restaurants and takeaways as financial stress makes tax evasion more tempting for smaller operators!
A quarter of cases on the HMRC’s major defaulters’ list come from this sector with restaurants and takeaways making up 26% (200 of 775) of businesses ‘named and shamed’ by HMRC as ‘deliberate tax defaulters’ since the start of the publication of quarterly lists in December 2017.
Recent examples include a Chinese takeaway business from Bangor which defaulted on taxes worth over £158,000, between 2012 and 2016, and faces fines of £77,000. An Indian takeaway in Luton defaulted on taxes worth £413,000 and faces fines of £310,000, while a pizza restaurant in Middlesbrough defaulted on tax of £60,000 and face fines of £27,000.
Restaurants are more likely than most businesses to under-declare income due to the high volume of cash transactions they process. With margins now under intense pressure in the restaurant industry, the temptation to improve profits by avoiding VAT or payroll taxes has risen.
HMRC is also aware of an electronic card payment system used by some restaurants and takeaways that does not leave an ‘audit trail’ and could facilitate tax evasion. HMRC has been particularly active in the pursuit of lost tax through tips, which can be difficult to monitor.