HMRC targets cash traders in hot food and catering

April 30th 2024

HMRC’s computer system has identified 4,000 traders in the hot food and catering sector that may be under-recording sales. What might this mean for your business, and could the review be extended to other sectors?  Kenny Logan from our Edinburgh office takes a closer look.

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 sales have been suppressed by retailers.

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.

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?
What’s unusual with this latest exercise for the catering sector is that HMRC has written to 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 has identified traders it believes have understated sales.

Although the exercise is aimed at VAT underpayments, an under-recording of sales will also mean that a business has underpaid income tax or corporation tax as well, depending on whether the business is incorporated.

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 the exercise in the hot food/catering sector proves successful, HMRC might decide to extend its efforts to other retail sectors where sales might have been suppressed.

If you operate a retail business, you should check that your takings and accounting records are robust, with a clear audit trail through to your VAT returns, as HMRC might extend the review if it is successful.

If you would like to discuss this further or have other questions, please do contact the JRW Hogg & Thorburn team directly.

Related Services