Get your tax house in order

As the spotlight falls on the tax affairs of the nation, hospitality operators should be prepared for more attention from HMRC in the coming months

THE current state of UK government finances seems to be putting more pressure than ever on HMRC to find new ways of delivering higher tax receipts, including the imposition of greater penalties for errors or non-compliance.

The current focus seems to be on maximising tax receipts rather than ensuring the right amount of tax is paid.
Leaving aside the debate on public duty of fairness, this shift in emphasis is worrying for the hospitality sector because it is seen as high risk by HMRC because of its itinerant workforce and high volume of cash transactions.


Hospitality is an easy industry to target – tax inspectors, like most of us, enjoy the simple comforts of a drink in the pub, a meal in a restaurant or an overnight stay in a hotel.
Whether they take these pleasures as part of a covert surveillance operation or just as a matter of routine on genuine social occasions, they will have gained some valuable insight from their visits.
Given the success of a focused campaign on restaurant and take-away businesses last year, hospitality sector businesses should be prepared for repeat investigations and are advised to consider how they can protect themselves in the event of an approach by HMRC.
Being prepared is the most important point to stress.
It’s vital that businesses ensure their records are properly maintained with proper checks and balances in place to monitor the flow of funds.
From a tax inspector’s perspective, weak records are a breeding ground for fraudulent or negligent conduct.
Businesses that have been notified of an upcoming VAT or PAYE compliance visit should consider hiring a tax specialist to get a health check of their records so any problems or weaknesses can be identified in advance.
It is also advisable to consider investigation fee insurance cover.
While you may have nothing to hide or any reason to doubt what you are doing is correct, any HMRC enquiry will be arduous, time-consuming and will likely require professional representation.
It’s worth noting that firms are often forced to settle a tax dispute simply because the associated costs of pursuing what they believe is a fairer outcome may outweigh the benefits.
All of these associated costs can be met through an annual insurance premium covering key areas such as VAT and PAYE compliance checks, as well as corporate or individual self-assessment enquiries. Compared to all the associated costs of an investigation, an insurance policy is a relatively inexpensive option.
In the event of an enquiry, it’s important to understand your rights to ensure the tax man does not abuse his powers.
This is a balancing act which requires great care and ideally professional advice as HMRC will take into account the amount of co-operation it received when considering the level of penalties on conclusion of an enquiry.
Finally, firms should never underestimate HMRC’s knowledge of the hospitality sector.
The organisation has employed business and industry specialists to gain a better insight into the practices adopted across the sector. HMRC knows, for example, about the software in your cash register, how it works and how to interrogate its data on the spot, an event which would typically happen during an unannounced visit at closing time.
Indeed, so detailed is the HMRC’s insight into operational matters within the hospitality sector that it has even calculated how much drink is typically consumed with a meal and will seek to cross reference purchased quantities of alcohol with sales.
It even has metrics to determine how much alcohol the chefs are likely to use in their cooking!
This is precisely why good record keeping is so important.
The tax man is also fully aware of Tronc schemes and continues to monitor the way these are administered and whether there is employer involvement in the allocation of tips.

Firms should never underestimate HMRC’s knowledge of the hospitality sector.

In addition to all the tax and NIC issues, HMRC will also monitor compliance with the national minimum wage so you can be assured that no stone will be left unturned.
The old fashioned techniques are also still used, with businesses being investigated on the back of tip-offs from disgruntled ex-employees. Some firms in the hospitality sector, where there can be a high turnover of staff, could be particularly susceptible to this.
Without wishing to create panic, it is important to understand the potential consequences of a tax investigation.
As part of a sector which is proving a happy hunting ground for the tax man, it’s vital for hospitality businesses to ensure they are prepared and have their house in order in the event of being paid a less-than-welcome visit from HMRC.

• Toby Rintoul is a director at accountancy firm Johnstone Carmichael.