Industry warned HMRC will continue to target restaurants over tax evasion

Figures have revealed that restaurants and takeaways make up 26% of the businesses ‘named and shamed’ by HMRC as ‘deliberate tax defaulters’ since it began publishing the list in December 2017.

Recent examples of UK restaurants taken to court by HMRC include a Chinese takeaway in Bangor that defaulted on taxes worth over £158,000 between 2012 and 2016, and faces fines of £77,000; and a pizza restaurant in Middlesbrough that defaulted on tax of £60,000 and faces fines of £27,000.

According to BDO, restaurants are believed to be 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.

“We will continue to make sure that every business, no matter their size or industry, pays all the taxes due under UK law and we won’t settle for less," said a HMRC spokesman.

“Tax avoidance doesn’t pay. People can end up paying more than they were trying to avoid in their misguided attempts to save money.”

The pursuit of lost tax through tips has been a recent area of focus for HMRC, with BDO saying failure to comply with regulations surrounding the reporting of tips could result in a business being investigated.

If a restaurant is found to be operating a tips scheme incorrectly or misreports its tips, HMRC can seek any unpaid tax along with interest and penalties.