To understand the whole story we must have some fundamental knowledge of tax avoidance and tax evasion.
Many people ask the following questions:
• Is Tax avoidance legal
• Is Tax evasion legal?
• What is legal between tax avoidance and tax evasion?
According to a HMRC spokesman "tax avoidance is bending the rules of the tax system to gain a tax advantage that Parliament never intended" however, this is more of a moral or ethical issue than a legal one while tax evasion involves the deliberate misinformation on an individuals or business financial records or activities. An example of this will be deliberately not declaring your full amount of sales or profits. So therefore tax avoidance is legal and tax evasion is illegal.
From simple understanding, we see that the restaurateurs are very busy with their daily life, family life and workload. Sometimes they leave behind the important work of record keeping which creates problems for them in long term.
In various situations, we have witnessed that communication problems can arise due to some restaurateurs speaking very little English which acts as a barrier for communication with both their accountant and HMRC. They also struggle to understand their Statutory legal requirements as a Sole Trader or a director of a company.
At some points, we have faced people who are not really bothered or concerned about the whole accounting and taxation issues.
We look at the past cases where the restaurateurs were doing tax evasion, they all had very similar patterns. We can list few of the symptoms below;
• Failing to keep records
• The directors submit the dormant accounts when they have been trading
• False VAT return
Channel S News Report on 24 February 2013
Why do the restaurants and takeaways face investigations?
In some experts opinion;
• Some restaurants do not declare the trading on time
• Failure to keep, provide and submit adequate accounting records or statements
• Clear fraudulent financial activities
Consequences of prosecution and if found guilty;
• Loss of money to lawyers and tax accountants helping you fight your case
• Payment of a huge fine
• Could lead to prison sentence and have a permanent criminal record
If we take an example of HMRC case then we can come to a conclusion:
In this case we look at Gurvinder Luthra, director of a restaurant in London’s Covent Garden, was disqualified from acting as a director for 10 years for submitting false VAT returns. This was due to him failing to keep records and filing incorrect accounts.
During the investigation it was found that from 1st September 2010 to the liquidation of the company, at least £334,456 (including VAT refunds adding up to £97,687) and £334,461 of payments were not made to HMRC. Another essential reason that Mr Luthra got banned was that the investigation found that the director failed to keep adequate accounting records.
Cheryl Lambert, Chief Investigator at the Insolvency Service, has stated that this should be a "warning to directors that they need to consider and take seriously, their duties and obligations" (HMRC, 2015). This means that HMRC does not take lightly the filing of false documents or accounting statements.
So in conclusion, this case shows that there is an increased crack down on restaurant owners to provide clear and concise accounting records in order to avoid prosecution by HMRC.
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