COMPLIANCE - 28.02.2024

HMRC targets cash traders in hot food and catering

Revenue risk

It is common for HMRC to identify specific trade sectors where it thinks that tax has been underpaid. Officers usually have some external data or comparative figures to support their findings. The alleged underpayments might relate to a specific risk area, e.g. proof of shipment for zero-rated exports, or a general conclusion that, say, sales have been suppressed by retailers. Several years ago, an HMRC compliance team focused its efforts on specific Subway franchisees that paid less VAT (on average) than other Subway outlets. The team collected a lot of extra tax and penalties from franchisees that had underpaid output tax.

Tip. It is important that you regularly check the credibility of your returns, perhaps by making a comparison to the same quarter in the previous two or three years. You should review the figures before you submit your return online to HMRC.

Trap. HMRC can issue a “best judgement” assessment for the last four years if it thinks that your business has underpaid tax. This period extends to 20 years in the case of deliberate underpayments. Interest and penalties can also be charged.

What is different here?

The unusual outcome with the latest exercise for the catering sector is that HMRC has written to agents, e.g. accountants, rather than business owners. The letter starts:

“ We need your help to remind your clients in the hot food and retail business to include all sales in their returns and we regularly receive data from card payment providers and online intermediaries who deal with food order and delivery services. ”

The wording of the letter indicates that HMRC has analysed accounting information and reports from national food intermediaries such as Deliveroo and Just Eat and identified traders it believes have understated sales.

Tip. If you trade in the catering sector, contact your agent to see if they have received a letter from HMRC. Trap. Although the exercise is aimed at VAT underpayments, an under-recording of sales will also mean that your business has underpaid income tax or corporation tax as well, depending on whether your business is incorporated.

Agent action

Your agent will need to contact HMRC to get a list of the 4,000 taxpayers in its sights. It is then up to your agent to discuss the situation with clients who are on the “hit list” and establish whether VAT has been underpaid. If so, the errors must be reported.

What should you do?

If you are a retailer and account for VAT on a cash rather than invoice basis, ensure that your takings records and audit trails are robust. Are your staff properly trained to know when sales are standard or zero-rated? Are all of your delivery sales via intermediaries being properly recorded as part of your takings? You must take positive action if there is a risk that HMRC could come knocking at your door. If the exercise in the hot food/catering sector proves successful, it might decide to extend its efforts to other retail sectors where sales might have been suppressed, so you should be prepared for this possibility.