It is believe that the initial focus will be on GPR (Gross Profit Ratio), particularly if it is considered to be lower than expected.
HMRC will compare the GPR declared by each business within a specific geographical area from information submitted on Self-Assessment Returns.
They will be able to see which fish and chip shops are declaring a lower GPR than similar businesses within specific towns, counties or regions.
KinsellaTax understand that penalties on any undeclared income or incorrect returns could be up to 100%, unlike the 10% currently being offered to medical professionals.
A spokesman for the Institute of Chartered Accountants of Scotland said:-
“It appears that our chippies are taking a battering compared to our doctors, and there’s no clear reason why. We support HMRC’s continuing efforts to tackle non-compliance, but for any campaign to gain acceptance, the criteria for penalties should be consistently applied. We question why doctors will be dealt with by a 10% fixed penalty, whilst fish and chip shops could be on the hook for a far higher penalty, for similar amounts of unpaid tax.”
Like any other review carried out by HMRC, the focus will be on the quality and accuracy of records kept by the owner of the business.
You should remember that it is a statutory requirement to keep and maintain business records, both financial and non-financial, for a period of six years.
KinsellaTax recommend that all retail owners should take the following steps to ensure their business records are compliant with HMRC regulations:-
- Take a till Z reading at the end of each working day and keep a record of this. Retain the till rolls in order to support these readings in your cash book.
- Keep a detailed record of the business cash flow along with purchase invoices, any expenses receipts and a record of any drawings to support what cash has been taken for private use. You should also keep a thorough record of any capital introduced to your business.
- Keep a systematic record of any wastage that may occur. If this step is not carried out, an inspector may perform a Business Economics Exercise which may produce an expected sales figure which is higher than any figure you may have previously declared. This would be extremely difficult to contest.
- Any food, drink or other sales items taken from the shop for personal use should be recorded as ‘own consumption’ and a clear record kept of this. An adjustment will be needed to be made for tax purposes.
- Keep a record of any special offers or discounts, for example lunchtime offers, meal deals, special promotions etc, as this may affect your takings.
- Ensure that for every member of staff employed, including part-time workers or school children, you have a detailed record of names, addresses and payments. P45’s or signed P46’s should be collected to show you are their main employer. If you do not have either one of these forms you should deduct basic rate tax from any wages paid.
- Carry out a stock-take at the end of your accounting period and record it carefully. This should be carried out even if the result is minimal.
If the steps listed above are carried out carefully and properly then any compliance check by HMRC will be easier and less painful.
Any business that is subject to a compliance check by HMRC should have a tax adviser to help them through it.