Finance: Expect the inspectors

As tax inspectors sweep into action, it's not too late to avoid that knock on the door.

So what did you do with your last tax return? Maybe you're one of the majority of publicans who filled it in and sent it back. But according to the Inland Revenue (IR) there are around 3,000 of you who still have it stuffed behind the clock, wedged under the leg of that wobbly table or have lost it somewhere in the digestive system of the dog.

If that's you, expect a call. On October 1, a specially recruited 400-strong team of inspectors swept into action aiming to mop up the laggards who have failed to complete their self-assessment forms, initially targeting those who are two or more years behind.

They will be writing, phoning and knocking on doors - and the advice is to be nice to them. They only want to help.

If, however, you continue to hide behind the settee you could have a nasty shock in store. At the last Budget the IR was given the power to penalise you to the tune of £60 per day per form. That means licensees who have failed to send in a form since self-assessment began in 1997 could face a fine that mounts up at the rate of £300 a day.

"Ignore us at your peril," said Keith Marshall, director of debt management - formerly known as chief tax inspector. "A lot of small businesses out there think it's not important, that it's only tax. That's an attitude we are out to change."

Before you start shaking in your shoes and booking a flight to South America, the thing to remember is that what the IR is really interested in is your ability to pay what you owe, not just today but tomorrow.

"We don't want to take penalties out against people, we want them to pay their tax," said Keith. "If they've got genuine difficulties they should tell us. We are trained to listen and we can work something out, help them to keep their business going. Whatever you do, don't bury your head in the sand."

According to Keith, there are three common reasons for not returning a self-assessment form - that you haven't had time, that you've left it to your accountant and nothing has happened or that you simply didn't realise what you had to do.

You've still got time to complete this year's form - the final deadline is January 31, 2004. But if there's a reason why you think you might not meet it, you should tell the IR by December.

Some people are intimidated by the whole idea of filling in a big form. But according to Keith: "The pub trade is a straightforward business in terms of tax. All sales go through the till, goods are bought through the brewery or cash and carry and details of purchases, wages, rent and so on should all be there to hand."

He admits that the old image of the tax inspector might deter people from seeking Inland Revenue advice but he points out that times have changed. The organisation is now responsible for tax credits - that is, it pays out money as well as taking it off people, and that has brought something of a culture change.

If you do get a call about your returns, for instance, it will also cover whether the IR owes YOU anything.

"We believe in customer service and we put a lot of effort into making people feel comfortable with us," said Keith. "We realise there is a need to educate people. If we succeed maybe one day we will put ourselves out of a job."

• For more information go to www.inlandrevenue.gov.uk

Tax tips​

• Save up what you are likely to owe in tax over the course of a year and keep it in a separate account
• Don't assume your accountant will do everything. They need accurate information from you
• Get a proper accounts book and record all your income and expenditure as you go along. It's worth spending time on this
• If you're just starting a business contact the Inland Revenue's business support team which will get you on the right track from the beginning
• A helpline has been set up by the Inland Revenue to help with self-assessment. Call 0845 9000 444 for free advice.

Pubs are a priority target for Inland Revenue PAYE audits. Employment taxes expert Dave Grimley explains how to prepare.​

It does not matter if you operate a national pub chain or you are the licensee of a single pub, no-one relishes the letter from the Inland Revenue (IR) telling you it wants to carry out a PAYE and National Insurance audit on your business.

Apart from the demand for money that invariably follows an audit, the professional fees, time and resources taken up generally make these reviews a thoroughly unpleasant experience.

In the past, the IR visited employers on a cyclical basis with audits being carried out every three to five years. Now, however, the IR is placing greater emphasis on "risk assessment" with the "riskier" employers being prioritised for an audit. Unfortunately, simply because of the nature of the trade, pubs fall into the risky category.

But before we all start drowning our sorrows waiting for the inevitable letter from the inspector there are a number of proactive steps you can take. By addressing these areas not only can you reduce your exposure to demands from the inspector, you can significantly delay any audit.

• Payroll​

It is a fact that a lot of students are employed in pubs but it is a common misconception that students "don't pay tax".

The P38(S) that is completed by the student only applies during the holidays and as term time differs across the UK the form may become invalid. Remember that the P38(S) only applies to tax and the student will still be liable to National Insurance Contributions (NIC).

Secondly, National Insurance Number (NINO) integrity is a hot topic. You should ensure that all your employees have provided a valid NINO as this demonstrates their right to work in the UK.

Employment status​

The inspector will look at the terms and conditions under which any self-employed people are engaged to see if they should be treated as employees. If these workers are re-categorised you will have to pay the PAYE and NIC due on the payments made, usually for a six-year period.

In your type of business the review will include stocktakers, relief managers, chefs, cleaners, entertainers, security staff and handymen. You should ensure that the terms and conditions under which they are engaged are that of a self-employed individual. Good indicators of a self-employed person include the degree of financial risk they take, your lack of control over them, their right to send a substitute and whether they provide their own tools.

Accommodation​

While pub managers have accommodation provided "for the proper performance of their duties" accommodation for other live-in employees may be chargeable to tax. Therefore you should consider whether to complete P11Ds for chefs, barstaff, assistant managers and so on.

It is generally accepted that a notional utility charge is returned on P11D. However, the provision of furnishings are often overlooked.

Tips​

The PAYE and NIC treatment of tips is a very complicated area. Generally, if tips are distributed from a pool there is likely to be a liability to PAYE and NIC. These may be paid via the normal payroll or through a separate "TRONC" system.

Sampling and product testing​

This may be an integral part of your business but, just for a moment, try to put yourself in the inspector's shoes. The problems are not confined to testing your own products but extend to those of your competitors. Ask yourself the question: "Is there a sufficiently robust audit trail to substantiate this expense?"

In addition to these specific areas the review will look at payroll deductions, sick pay and maternity pay, tax credit pa