HMRC crackdown on restaurants: what the taxman will be looking out for

  • Focus on undeclared cash tips and VAT
  • Undercover inspectors to visit restaurants
  • Chips and other takeaways a favourite

HM Revenue & Customs (HMRC) is to crackdown on tax evasion by restaurants as part of the Government’s plan to raise an extra £7 billion a year from tax evaders.

HMRC is likely to pay particular attention to undeclared cash tips and VAT receipts. HMRC inspectors have been known to operate undercover and buy meals at restaurants and then check whether their purchases have been properly accounted for.

David Guest, chairman of our Hotel and Restaurant Sector Group, comments:

“HMRC will be looking at Michelin star restaurants right down to lowly takeaways. The cheaper restaurants are likely to have a much higher proportion of their takings as cash, which makes it easier for them to not record sales and evade tax.”

“VAT on takings is always a focus of attention for HMRC. Many restaurants are low margin businesses and are still suffering the effects of the decline in eating out. With VAT now 20%, the temptation to boost profits by not handing all of it over to the taxman is greater than ever.”

“Restaurant owners are supposed to apply income tax and National Insurance to tips, but when tips are paid in cash, it’s all too easy for waiting staff to pocket them and for the proprietor to turn a blind eye. It’s understandable as many restaurant staff are on low wages.”

“HMRC has been known to send undercover inspectors to restaurants to buy a meal, so that they can then check whether the purchase has been properly accounted for! The idea of tax inspectors spending time dining in restaurants may sound absurd, but it can provide valuable insight into how a business is run.”

“Restaurants which are attached to pubs or bars can be a fruitful avenue of enquiry. Pubs and bars account for VAT on sales at 6.5 per cent, but restaurants charge VAT at 20 per cent. When the two businesses are connected it can be quite easy to disguise sales made in the restaurant as pub sales and pocket the difference in VAT.”