It’s recently been reported that HM Revenue & Customs will be taking a closer look at eateries – and not just to sample the menu!

I asked Shaz Nawaz of AA Accountants to provide some guidance.

So it’s absolutely vital that business-owners get it right – because if you don’t, it will be you who has to pay over any tax or NI plus any interest and penalties! Instead of simply working to ensure the right amount of tax has been paid, tax officers are now tasked with maximising the amount of tax collected. The hospitality sector is a very easy one for them to target – because we all use it, including the tax man!

Let’s look at a few areas:

RECORDS

It’s vital that your books and records are detailed, accurate and up-to-date. Whatever system you use, make sure everyone knows how to make the correct entries. It’s a pain, but you need to be on top of this. If you are targeted and details are missing, you can be sure that HMRC will err on the side of not giving you the benefit of the doubt.

PAYE

Everyone who works for you is likely to be an employee. The ‘casual worker’ exception is very limited indeed. The implementation of the Real Time Information system has raised the bar on the requirement for accurate and timely returns.

TIPS

The hospitality sector is by definition one in which cash tips are common. Do you and your employees really understand the taxation implications? PAYE and NIC may apply to tips and gratuities – it depends on whether the customers pay voluntarily or through a compulsory service charge, how it is distributed and who decides on the distribution.

If tips are collected through a compulsory service charge then you must calculate PAYE and NI on the amount each employee receives, whether they are paid direct or receive it via a tronc system.

If your employees receive voluntary (discretionary) tips direct from the customer, and keep them, then you do not need to do anything about PAYE or NI. But the employee is under a duty to declare the tips to HMRC and pay tax on them!

If employees do not keep their own tips then it depends who decides how these are to be distributed. If it’s you, then you must calculate and deduct both PAYE and NIC for the amount each employee receives. If someone else decides (such as a troncmaster) then your deduct PAYE but there’s no NI

TRONCS

This is an arrangement for pooling and distributing tips (but not compulsory service charges). The person who runs it is known as a troncmaster, and a tronc has its own rules and its own PAYE reference.

You must tell HMRC who the troncmaster is (even if it’s you) and it is the troncmaster who has the responsibility for calculating and deducting PAYE . If it is you who decides how the money in the tronc is allocated, then NI is payable and you are responsible for calculating, deducting and paying this. If however a third party decides, such as the troncmaster, then no NI is payable.

STAFF ACCOMMODATION

If you provide your staff with accommodation, then this is only tax-free if it is either necessary or customary for accommodation to be provided to enable the employee to carry out his or her duties.

Otherwise it’s a benefit in kind and must be reported. For employees earning under £8,500 pa (unless they’re company directors) there is no tax or NI on the value of the accommodation. Otherwise there’s Class 1A NIC on the value of the accommodation.

TAXIS

A word about taxi-drivers – also linked to the hospitality industry and also to be targeted.

Since many taxi-drivers are self-employed, and since a good many fares are paid in cash, they suffer the attentions of HMRC on two counts. Again, accurate record-keeping is absolutely crucial.

If you’re self-employed in an industry where it is common to receive gratuities, then it counts as part of the profits of your self-employment and you are required to declare it. You’ll pay income tax and NI on these via the Self Assessment system.

On the other hand, as a self-employed individual, you’ll be able to claim expenses that are allowable against your earnings.

If you would like to discuss any of the information above, please contact Shaz Nawaz from aa Chartered Accountants on 01733 555667. Alternatively you can email him on shaz@aa-accountants.co.uk