Published in the Wigan Observer:

HMRC has created a number of specialist teams to carry out compliance visits to ensure that fast food outlets in the North West are correctly paying their tax. Catering is one of the most complex areas of VAT and it is easy to unwittingly fall foul of the VAT man if you don’t pay close attention to VAT compliance. Many cold food items, like sandwiches, that are sold on a takeaway basis are zero rated. The fast food proprietor therefore has a VAT incentive to code more sales against his cold food takeaway food button, even if the sale is “on premises” or “hot food takeaway” (i.e. standard rated). HMRC officers will look closely to check that the overall level of zero rated sales compared to standard rated sales is consistent with the layout of the premises and behaviour of customers that they may observe during the visit.

It is likely that HMRC will attend premises at the end of a busy trading period and ask the proprietor to open his till, so that the overall level of sales being achieved by the business on a typical day can be established. HMRC will be looking to establish the sales of the business in order to compare it to the sales figure declared on its VAT returns. Whilst it is quite normal for a business to make cash payments out of its till takings it should ensure that gross daily takings are recorded correctly and there are receipts to support any expenditure. Failure to get this right will understate sales and are could lead to a VAT assessment.

As in any other business it is important that accounting records are maintained to support the declarations a business makes on tax and VAT returns. Make sure that till rolls, cash reconciliation sheets and other supporting records are properly retained to support any HMRC challenge during a visit. Inadequacies in business records are one of the main causes that lead to large VAT assessments.