HMRC Investigation for Restaurants — Expert Guidance When You Need It Most
Whether you are facing an enquiry right now or want to make sure you never do, our chartered accountants with integrated legal support have you covered.
Why Restaurants Are HMRC's Number One Target
Hospitality businesses face more HMRC scrutiny than almost any other sector. Understanding why helps you stay protected.
Cash-Heavy Operations Draw Scrutiny
Despite the shift to card payments, many restaurants still handle significant cash. HMRC knows that cash income is the easiest to underreport, which is why hospitality consistently tops their investigation priorities.
Delivery Platform Data Cross-Referencing
From 2024, Deliveroo, Uber Eats, and Just Eat must report your income directly to HMRC. Their Connect AI system automatically flags any discrepancies between platform data and your tax returns.
Electronic Sales Suppression Is Now Criminal
Manipulating or suppressing till records — once treated as a civil matter — is now a specific criminal offence carrying penalties of up to £50,000 per device, plus potential prosecution.
Whistleblower Scheme Pays Informants
HMRC's enhanced whistleblower programme now pays informants 15–30% of recovered tax over £1.5M. Disgruntled ex-staff, former partners, or even competitors can trigger an investigation with a single report.
National Minimum Wage Enforcement
HMRC identified £5.8M in National Minimum Wage arrears from over 25,200 workers in 2024/25 alone. Hospitality is a primary enforcement sector, and payroll irregularities often trigger wider tax investigations.
Sector-Wide Campaign Targeting
HMRC periodically runs targeted campaigns focused on specific industries. Restaurants and takeaways have been featured repeatedly. When a campaign runs, investigation volumes in the sector increase dramatically.
The 8 Most Common Triggers for Restaurant Tax Investigations
HMRC does not investigate at random. These are the patterns and signals that consistently draw their attention to hospitality businesses.
Below-Benchmark Profit Margins
HMRC expects restaurants to achieve 3–5% net profit. If your margins consistently fall below this, their systems flag it as a potential indicator of undeclared income or inflated expenses.
VAT Returns Inconsistent with Income
If your VAT submissions do not align with your reported turnover, bank deposits, or platform income, HMRC's Connect system will detect the discrepancy automatically.
Large Cash Deposits Without Explanation
Bank deposits significantly higher than declared cash sales attract immediate scrutiny. HMRC has full access to banking data and uses it to cross-check your returns.
Tips and Tronc Reporting Irregularities
Incorrect handling of tronc schemes, undeclared staff tips, or inconsistent reporting of service charges are common triggers in restaurant investigations.
Delivery Platform Data Mismatches
Since 2024, delivery platforms report directly to HMRC. If your tax return shows less income than platforms have reported, an enquiry is virtually guaranteed.
Whistleblower Reports
HMRC receives thousands of tip-offs annually from current or former employees, business partners, and competitors. The new financial incentive structure has significantly increased reporting.
Industry-Wide HMRC Campaigns
When HMRC runs a hospitality sector campaign, they increase investigation activity across the board. Even compliant businesses can find themselves selected for review.
Lifestyle Inconsistent with Declared Income
Social media posts, property purchases, vehicle registrations, and overseas travel — HMRC monitors these data sources and compares them against your declared earnings.
What Happens if HMRC Opens an Enquiry
Understanding the process removes fear and helps you make better decisions. Here is what a typical HMRC investigation looks like for a restaurant business.
Initial Letter Arrives
HMRC writes to you or your accountant outlining that they are opening an enquiry. This may be an aspect enquiry focused on one issue or a full compliance check covering everything.
Information Request
HMRC issues a formal information notice requesting specific documents — till records, bank statements, supplier invoices, payroll records, delivery platform statements, and VAT returns. You are legally required to comply within the stated deadline.
On-Site Visit
In many restaurant investigations, HMRC will request access to your premises to inspect records, observe till operations, and review working practices. This may be announced or, in suspected fraud cases, unannounced.
Document Review and Analysis
HMRC officers analyse your records against benchmark data, platform reports, and their own intelligence. This phase can take several months as they build a picture of your business operations.
Interview Under Caution
If HMRC suspects deliberate wrongdoing, they may invite you to attend an interview under caution. At this stage, legal representation is essential — not optional. What you say in this interview can form the basis of criminal proceedings.
Assessment, Penalties, and Resolution
HMRC issues their findings, including any additional tax owed, interest, and penalties. This is where professional negotiation makes the biggest difference — penalties can often be significantly reduced through proper disclosure strategy and cooperation.
Types of HMRC Investigation
Aspect Enquiry
Focused on a specific issue such as a VAT discrepancy or a particular expense claim. Usually resolved within 3–6 months with proper professional support.
Full Enquiry
A comprehensive review of your entire tax affairs including income, expenses, VAT, payroll, and compliance. Typically takes 12–18 months and requires significant documentation.
Criminal Investigation
Reserved for suspected deliberate fraud or evasion. Carries the risk of prosecution, unlimited fines, and imprisonment. Legal representation is absolutely essential from the first moment.
How We Defend and Protect Hospitality Businesses
Whether you are currently under investigation or want to ensure you never face one, we provide comprehensive support tailored to your situation.
Currently Under Investigation
Immediate professional defence and representation
We take over all HMRC correspondence immediately, removing the stress of direct communication
Full review of your records to build a comprehensive, well-evidenced defence strategy
Expert penalty negotiation to minimise financial impact through strategic voluntary disclosure
Legal representation through our integrated legal partners if HMRC escalates to criminal investigation
We attend meetings and interviews on your behalf so you can focus on running your business
Prevention and Compliance
Stay protected before HMRC comes knocking
Quarterly compliance health checks to identify and resolve vulnerabilities before they become problems
Proper record-keeping systems designed specifically for restaurant operations and HMRC expectations
HMRC-ready VAT processes and payroll compliance including tronc scheme management
Delivery platform revenue reconciliation to ensure your tax returns match reported platform income
Making Tax Digital readiness and ongoing compliance monitoring across all your obligations
Why Integrated Legal Support Matters
Most accountants refer you to a separate solicitor when HMRC escalates — creating delays, duplication, and extra cost. At LOYALS, legal support is built in from day one. Your accounting defence and legal representation work together seamlessly, under one roof.
Understanding HMRC Penalties for Restaurants
Penalties depend on the nature of the error and whether you disclose voluntarily. Professional guidance on disclosure strategy can save your business significant sums.
| Type of Error | Penalty Range | With Voluntary Disclosure |
|---|---|---|
| Careless errors Mistakes from lack of reasonable care |
0–30% of tax owed | Can be reduced to 0% with unprompted disclosure |
| Deliberate errors Intentional inaccuracies in returns |
20–70% of tax owed | Can be reduced to 20% with full cooperation |
| Deliberate and concealed Active concealment of errors |
30–100% of tax owed | Can be reduced to 30% with full cooperation |
| Failure to notify Not telling HMRC about a tax liability |
Up to 100% of tax owed | Significant reductions possible with prompt voluntary disclosure |
| Criminal prosecution Fraud, evasion, till suppression |
Unlimited fines + up to 7 years imprisonment | Legal defence essential — early cooperation may influence sentencing |
Trusted by Restaurant Owners Across London
"When we received an HMRC letter, LOYALS responded the same day and handled everything from start to finish. We did not have a single sleepless night after that first call. They knew exactly what to do and kept us informed every step of the way."
"LOYALS set up proper record-keeping systems for our café and made sure we were fully compliant across VAT, payroll, and our delivery platform income. Knowing everything is in order gives us real peace of mind."
"The thing that sets LOYALS apart is their availability. We messaged them on a Saturday afternoon about a concern and they came back within the hour. For a busy pub operation, that kind of responsiveness is invaluable."
Get Expert Help Today — Here Is How
Whether you need emergency support for an active investigation or want to strengthen your compliance position, the process is straightforward.
Call Us or Book Online
Same-day emergency consultations available. Evenings and weekends included because HMRC letters do not arrive at convenient times.
We Review Your Situation
We assess the scope of the enquiry or your compliance position and create a clear, tailored response strategy within 48 hours.
We Handle HMRC
We manage all communication, documentation, and negotiation with HMRC so you can stay focused on running your business.
Book Your Confidential Consultation
Free initial assessment. Clear fee estimate before any work begins. Payment plans available for investigation support.
Available evenings and weekends. Because HMRC letters do not arrive at convenient times.
Your HMRC Investigation Questions Answered
The single most important thing is to not respond directly to HMRC before speaking with a qualified professional. Everything you submit or say to HMRC is recorded and can be used in any subsequent proceedings. Contact us immediately — we offer same-day emergency consultations and will review the letter, assess the scope, and prepare a measured response that protects your position from the outset.
In most civil enquiries, HMRC will write to you or your accountant before opening a formal investigation. However, if they suspect fraud — particularly Electronic Sales Suppression (till fraud) — they have powers to conduct unannounced visits to inspect premises, records, and till systems. Criminal investigations can also begin without advance notice.
The time limits depend on the nature of the error. HMRC can look back 1 year for simple administrative errors, 4 years for careless mistakes, 6 years for deliberate errors, and up to 20 years where there has been deliberate concealment or fraud. For restaurants handling significant cash, HMRC may seek to go further back if they suspect systematic underreporting over an extended period.
HMRC expects restaurants to maintain comprehensive daily records including till Z-readings, all purchase invoices and receipts, complete bank statements, detailed staff records covering payroll, tips, and tronc arrangements, all delivery platform statements, full VAT records, and evidence of any cash payments received. These records must generally be retained for at least 6 years. Missing or incomplete records significantly weaken your position in any investigation.
Yes. Deliberate tax evasion is a criminal offence carrying unlimited fines and up to 7 years imprisonment. Electronic Sales Suppression — manipulating till systems to hide income — is now a specific criminal offence with penalties of up to £50,000 per device in addition to prosecution. HMRC is increasingly willing to pursue criminal cases in the hospitality sector to set precedents. Early professional intervention significantly reduces the risk of prosecution.
Timescales vary significantly depending on complexity. A straightforward aspect enquiry focusing on one issue might be resolved within 3–6 months. A full compliance check can take 12–18 months or more. Criminal investigations can extend over several years. Having professional representation from the outset typically reduces the duration because responses are thorough, properly prepared, and submitted within deadlines.
Absolutely. From 2024, digital platforms including Deliveroo, Uber Eats, and Just Eat are legally required to report seller income data directly to HMRC under the new platform reporting rules. This data is automatically cross-referenced with your tax returns through HMRC's Connect analysis system. Any discrepancies between what platforms report and what you declare will trigger further scrutiny. Proper delivery platform accounting is now essential for every restaurant.
Penalties can be substantially reduced through three main approaches: making an unprompted voluntary disclosure before HMRC contacts you, cooperating fully with the investigation once it begins, and demonstrating that you have taken concrete steps to prevent future errors. An unprompted disclosure can reduce penalties for careless errors to as low as 0%. Professional guidance on disclosure strategy is critical because the approach and timing of disclosure significantly affects the outcome.
If HMRC escalates to a criminal investigation or invites you to an interview under caution, legal representation becomes essential — not optional. Most accountancy firms would refer you to a separate solicitor at this point, creating delays and duplication. At LOYALS, we provide integrated legal support as part of our service. This means your accounting defence and legal representation are coordinated from the same team, ensuring nothing falls between the gaps.
Costs depend entirely on the scope and complexity of the investigation. We offer a free initial consultation to assess your situation and provide a clear, transparent fee estimate before any work begins. In our experience, the penalty reductions achieved through professional representation far exceed the professional fees involved. We also offer payment plans for investigation support because we understand that an unexpected HMRC investigation creates financial pressure you have not planned for.