Operation Gourmet hits top restaurants for NICs

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Leading restaurant groups could be liable for millions of pounds in arrears of national insurance contributions as a result of the Inland Revenue's continuing campaign 'Operation Gourmet', according to a report in the Telegraph.

The paper said a Revenue report due shortly is expected to force many restaurateurs to increase their NIC payments, and "should clarify the controversial issue of how waiters are paid and taxed".

The Revenue has been investigating the industry for more than two years as part of Operation Gourmet. The Revenue has been examining restaurants' special arrangements - known as troncs - used to distribute tips, gratuities and service charges.

The Revenue claims many restaurants have been abusing the system and owe up to six years' unpaid contributions.

According to the report...

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Nothing publicly announced. But...
Malcolm,

The Revenue have not publicly announced anything regarding the E24 which is why there is so much confusion. However those of us who have a large number of clients under enquiry in this area have been told - on a case by case basis - this had to happen to explain away the fact that the Revenue had suspended it's enquiries and was declining to settle any investigations.

An announcement on their website wouldn't have gone amiss......

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Thanks
Many thanks to the informative comments from other contributors.

Liz, When you say 'we' have been advised by the Revenue that they will be withdrawing E24 do you mean your firm or a professional body/sub-committee?

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Awaiting new guidance with interest
We have been advised that booklet E24 was effectively withdrawn in the autumn, as the Revenue accepted as a result of representations made to them by ourselves and others that their guidance needed to be changed. We understood that the new guidance was due to be published shortly before Christmas, but it has obviously been subject to some delay.

We advise a number of clients in the hospitality industry who are being challenged on this issue by the Revenue. These cases have been held in limbo while the Revenue considered whether its interpretation as set out in E24 was correct. This is a difficult and long-running issue for those in the hospitality industry, and we hope that the representations we have made on our interpretation of the legislation will be reflected in the new guidance.

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There will be major changes
My understanding is that the revised E24 booklet will contain some major changes to the Revenue's interpretation of the legislation as set out in the original version. IR staff have been instructed not to settle any cases in advance of it's publication, hence the limbo. The Revenue are being extremely guarded about it's contents which leads me think that either (a) the guidance still isn't finalised, or (b) there remains uncertainty about it's basis in law.
The problem here has to be for clients - those under investigation have been given no indication as to whether or not they will now be exonerated, and other clients attempting to set up Revenue-compliant systems don't know what to do. Try going into the Revenue website and searching for "E24" - all the links appear to have been removed and it no longer appears on the search results! End result = confusion, worry, and uncertainty all round.

I think many businesses will be able to breathe a sigh of relief when the guidelines are published, but there will be those who still fall foul of the Revenue's (new) interpretation. I think we can expect to see the IR moving ahead aggressively on those enquiries. I'm sure the first Commissioners case won't take long to materialise as there are a large number of businesses who have been issued with formal Section 8 Notices for Class 1 NICs.

Because the Revenue have gone quiet since mid-Autumn many people have started to think this has gone away. For some businesses it will have done; for others it's the calm before the storm.

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Next...PoCA - are cash tips reportable?
Believe it or not, the answer to the earlier posting could well be "yes". If as advisers we are aware that cash tipping takes place (and no tax at source is deducted) PLUS we also become aware of the code numbers for employees (showing no restrictions) then we would have reasonable grounds to suspect that an offence has taken place. In larger organisations, where payroll functions are entirely seperate, it may be that the two pieces of information would never come together in the normal course of business and neither party would have grounds for suspicion.

But otherwise my view is that if you have both a confirmation that cash tipping takes place AND knowledge of the employees codings showing no restrictions, then you have reasonable grounds to suspect that an offence has taken place and would be bound to report.

I'm not a MLRO myself, so any thoughts from MLROs out there much appreciated!

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Money Laundering POCA Reportable?
Per E24: "If customers give cash tips directly to staff or leave them on the table and individual staff members retain them, without any involvement from the employer, then PAYE does not apply. It is the responsibility of the individual employee to advise the Inland Revenue of the amounts of money received. The tax will usually be recovered by an adjustment to the employee’s tax code."

Does this mean that in the case of any restaurant/hotel/pub client where there is no tronc and waiting staff do not have adjustments to their codes there is a responsibility to report to NCIS?

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Things may have gone quiet, but...
Having very considerable experience in this area I believe that for the last few months things have been a bit quiet on the Gourmet front whilst the Revenue re-drafted their guidance. This is expected soon and whilst it will be good news for many, for those who are still perceived to fall foul of the revised guidance the Revenue are likely to take an extremely tough line.

Act now to make sure that your clients won't be caught when the Revenue resume their offensive!

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