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HMRC targets VAT evasion in food sector

15 July 2011

A new initiative announced by HM Revenue & Customs (HMRC) confirms it's continuing to focus its attention on the food and beverage sector according to business and finance advisers Grant Thornton UK LLP

This announcement is part of a series of taskforce initiatives intended to concentrate on specific industries and geographical areas. HMRC believes that there is a problem with some fast food outlets deliberately falsifying their records and mis-declaring their true sales levels in order to avoid paying the correct amount of tax.

Lorraine Parkin, Head of Indirect Tax at Grant Thornton said: "The food and beverage sector has to contend with some of the most complex VAT rules. In particular, 'take away' businesses must determine the VAT liability of supplies based on why food is heated or sold hot, and where it was actually consumed after it had been purchased. More recently, the very definition of the term 'catering' had to be considered by both the European Court of Justice and a UK court.

"Although the announcement of these initiatives will be disappointing news for some in the sector, it does provide an opportunity for others to bring their affairs up to date. Any business in the sector that is uncertain about the liability of its supplies, or whether it has accounted for the correct amount of tax should review its position without delay in light of this latest announcement."

Parkin adds "Businesses that are uncertain about whether their turnover has exceeded the VAT registration limit should check with their adviser or consult the HMRC website for more details. Those who notify HMRC by 30 September 2011 that they plan to make a voluntary disclosure about trading above the VAT threshold whilst unregistered may face reduced penalties."

HMRC had initially announced that the taskforces would focus on the London restaurant sector, and would be expanded to the North-West of England and Scotland later in 2011 and into 2012. The review of the sector is now being extended and a new taskforce will be set up to review the VAT compliance of London’s fast food outlets as well.

Taskforces bring together teams from across HMRC including criminal investigations, specialist investigations and local compliance. The taskforces will pool expertise and skills from these different areas for a fixed period of time, with the aim of providing a quick method of challenging tax evasion. While cases will tend to be led by either VAT or employer compliance, all taxes will be considered in each case to minimise tax evasion.

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