Restaurants and takeaways make up a quarter of HMRC's named and shamed tax defaulters

BDO research has found that restaurants and takeaways make up 26% of those businesses ‘named and shamed’ by HMRC as ‘deliberate tax defaulters‘ since they began publishing the list in 2017.

The accounting firm, which analysed HMRC’s own figures for 775 businesses, says this can be explained by the increased temptation for evasion among smaller operators thanks to financial stresses.

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 has also discovered that some restaurants and takeaways use an electronic card payment system which does not leave an audit trail. This could make tax evasion even easier.

Examples of UK restaurants ‘named and shamed’ by HMRC recently 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 which defaulted on taxes worth £413,000 and faces fines of £310,000
• A pizza restaurant in Middlesbrough which defaulted on tax of £60,000 and faces fines of £27,000in Middlesbrough defaulted on tax of £60,000 and faces fines of £27,000

Unreported tips

One of the areas HMRC has been particularly active in pursuing is tips, which can be difficult to monitor. If a restaurant is misreporting its tips or operating a tips scheme incorrectly, HMRC can pursue lost tax and interest and penalties besides.

HMRC has set up specialist taskforces in the past which have investigated specific businesses. These include:

• Restaurants in the Midlands
• Fast food outlets in East Anglia
• Restaurants in Lincolnshire and Tyneside
• Restaurants in London

Partner at BDO Dominic Arnold said: “HMRC’s crackdown on tax evasion and avoidance continues with gusto and remains high on the government’s agenda.

“HMRC has a range of taskforces now focused on investigating the restaurant industry. The use of taskforces has proved very effective in the past and businesses need to be aware HMRC is going to continue to throw this kind of concentrated effort at the sector.”

‘Tax avoidance doesn’t pay’

Responding to the BDO research, an HMRC spokesperson told Accountancy Age: “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.

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