HM Revenue and Customs (HMRC) know that 'cash trades' are often susceptible to a suppression of takings and regularly target cash traders for tax enquiries.
Where HMRC's suspicions are confirmed and the evasion of tax is significant, a criminal prosecution may well follow.
Recently, the owner of a Leicestershire takeaway was given a 28-month prison sentence after he was found guilty of evading more than £137,000 in Income Tax and £27,000 in VAT over a period of seven years.
In addition to the prison sentence, he has been ordered to repay his tax debt. As the tax evaded is strictly the proceeds of crime, he has been ordered to make the repayment within three months or face a further 30 months in prison.
Among the techniques regularly used by HMRC in such investigations are:
- to buy 'sample meals' to analyse the expected gross profits and to use these to calculate the 'expected turnover' (based on the business's purchases), which is then compared with the declared turnover;
- to examine the wealth and lifestyle of the business owner and work out the income necessary to achieve these, again comparing that with the declared income; and
- to put the business under surveillance, noting customers coming and going and comparing the expected takings on those days with the recorded takings.