HMRC targets hot food traders through their agentsby
HMRC has commenced a new VAT campaign, this time targeting businesses in the hot food and catering sector.
It is not unusual for HMRC to target a specific sector and to write to traders, and it's not unusual for HMRC to write such letters in a non-accusatory manner, encouraging taxpayers to check that their records are accurate and complete.
However, this campaign/letter sees HMRC writing to the agent, not the taxpayer. HMRC has identified 4,000 traders who it believes are under reporting their sales and is writing to 500 agents who it has on record as representing those 4,000 traders.
The Institute of Chartered Accountants in England and Wales (ICAEW) has a copy of the letter being sent to selected agents.
Anything fishy to declare?
The letter being sent to agents states: “We need your help to remind your clients in the hot food retail business sector to include all sales in their returns and that we regularly receive data from card payment providers and online intermediaries who deal with food order and delivery services. We use this data to help make sure the tax returns we receive are accurate.”
This suggests that HMRC has analysed data from the ever-popular food delivery intermediaries such as Uber Eats, Just Eat and Deliveroo and has identified discrepancies between that data and filed VAT returns or on corporation/sole trader tax returns.
What to do if you’re an agent of the targeted businesses?
HMRC invites the agent to contact them and will supply a redacted list of taxpayers in its sights. It is annoying that HMRC requires the agent to ask for the list, but presumably this is because HMRC’s records may not be up to date and the agent on record may no longer be the agent for the taxpayer. This process avoids potential data protection/GDPR issue.
It is also important to remember that if there has been an understatement of sales or VAT, then there is likely also to be an understatement for corporation or sole trader purposes. This is not just a VAT specific matter.
Given that the tax authority has a list of potential taxpayers, if you receive this letter take it seriously.
Ensure that going forwards the affected clients' systems are robust and accurate, then look to see if there are any historical issues/under declarations. If there are, then a VAT652 voluntary disclosure is recommended for VAT. Amendments to other taxes will be as per the usual routes.
Even if you have no concerns about your client, it may still be worthwhile to offer your hot food clients a deeper dive into one or two of their future returns to ensure compliance, an opportunity to provide added value/service or even an extra fee perhaps?
There is a lot that can potentially – and innocently – go wrong with delivery transactions.
- The sales data often comes in different formats depending on which delivery firm is involved, most takeaways will use more than one delivery firm to increase their sales. The accountant or bookkeeper may not have direct access to the delivery firm's portal and is reliant upon the client to download and export the appropriate data.
- Where the trader is VAT-registered, it is down to the trader to accurately upload their menu to the delivery firm websites and identify which items are standard or zero rated (pizza and side salad for example) and if the trader has done this manually it may mean their in-store tills are correctly recording VAT but their online ordering is not.
- Sales data will usually be gross, it should identify if the sale is zero rated or not, but there will be pages of sales data and errors may not be easily spotted.
- The sales data may not always match the payment received; the delivery firm will deduct its own fees/charges before depositing the remaining funds to the client's bank account. A trader might be operating on a pure cash in bank basis when declaring their sales. This is a risk because the money received from the delivery firm is net of fees, thus if a trader uses the received funds to calculate their VAT liability (1/6th of the receipts) then they’ll be understating their sales and output tax.
- The trader may have a bank account just for the delivery sales, perhaps to reduce bank/card fees. When preparing the VAT return it may mean accidently excluding this additional bank account and the takings not being declared on the VAT return.
- The trader could of course be trying to intentionally avoid VAT by under declaring their sales and this can be difficult for a bookkeeper or accountant to spot.
- The campaign is separate to but connected with another campaign related to electronic sales suppression software that refers to illegal software that is uploaded into EPOS systems which intelligently supress sales sufficiently so as not to attract attention.
HMRC is seeking the help of agents in this matter. This suggests to me that HMRC is not confident that a taxpayer who is under declaring will be honest. Therefore, it needs the agent to make the move.
If nothing else, it does indicate that HMRC recognises the importance a tax agent has in the balanced relationship between agent, HMRC and the taxpayer, even though HMRC’s online progress has often seen agents been treated as an afterthought.
You might also be interested in
Jason has over 20 years’ experience working exclusively in indirect taxes (VAT, import duty, SDLT) with owner-managed businesses, corporates and not for profit sectors. He particularly enjoys challenging HMRC decisions, representing clients in tribunals or during inspections.
Experience includes land and property, partial exemption and...