Inside Hospitality

INSIDE HOSPITALITY Issue one

HMRC targets hospitality businesses for incorrect furlough claims

buzzacott.co.uk

Why you should review your tipping practices before reopening

How has Brexit changed international employment for the hospitality sector?

In this edition Welcome from Mark Taylor....................3 HMRC targets hospitality businesses for incorrect furlough claims................ 4 Why you should review your tipping practices before reopening.................... 6 How has Brexit changed international employment for the hospitality sector?...............................................................8 Hospitality industry 2021 - What happens now?..............................................10 HMRC investigating Eat Out to Help Out claims.....................................................12 2021 National Living/Minimum Wage - ensure you’re compliant ....................15

Welcome

As Head of Buzzacott’s Troncmaster Services team, I would like to welcome you to the first edition of Inside Hospitality.

Our inaugural issue, and all editions to follow, will assist businesses and staff working in the hospitality industry with insight into topics and challenges affecting the sector, including the latest HMRC news and actions.

COVID-19 has changed the way we all work, and this includes the way HMRC’s focus on the hospitality industry has increased due to furlough and the Eat Out to Help Out Scheme. While HMRC eased some of its work during the early period of the first lockdown, we are seeing a return to increased compliance activity. This edition provides examples demonstrating this shift.

We also have some fascinating articles including why you should review your tipping practices before reopening; how has Brexit changed international employment for the hospitality sector?; 2021 National Living/Minimum Wage changes; and contribution from guest author Simon Binder on how 2020 will change the hospitality sector in 2021 and beyond.

Mark Taylor Partner Head of Troncmaster Services

We hope you enjoy this issue, and look forward to receiving your feedback.

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HMRC targets hospitality businesses for incorrect furlough claims HMRC has stepped up how intensely it’s targeting incorrect furlough claims and is now turning its attention to the hospitality sector. If you have concerns about the accuracy of your claims, here’s what you should do, now.

The Coronavirus Job Retention Scheme (CJRS), otherwise known as the furlough scheme, has been heavily relied upon by the hospitality sector to provide vital financial assistance to both employers and employees, helping to avoid largescale redundancies. However, following recent announcements by the Chancellor as well as fraudulent CJRS claims from some restaurants hitting the press, HMRC is turning its attention to the hospitality sector for incorrect COVID-19 support claims.

It’s prudent to consider your claim(s) now, to ensure you don’t get on the wrong side of HMRC and have the worry of an investigation, just as the sector looks like it’s on the cusp of a return to some much needed normality.

HMRC firepower HMRC’s Chief Executive, Jim Harra, recently revealed that HMRC has assumed ‘for the purposes of planning’, that between 5% and 10% of the sums it has paid out were based on erroneous or fraudulent claims. The ‘planning’ Mr Harra was referring to involved not only recovering up to £3.5bn of overpayments but also punishing those responsible for deliberately submitting fraudulent claims, and it now appears HMRC is ready to intensify investigations.

In the government’s Spring Budget, the Chancellor confirmed that HMRC will be provided with significant additional resources to tackle those 04 |

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that have unlawfully benefited from the CJRS. The Chancellor added that HMRC will be granted £100m to form a new ‘Taxpayer Protection Taskforce’, which will bolster HMRC’s new workforce by more than 1,250 HMRC operatives.

Check, disclose, pay-back HMRC has already acknowledged that not every incorrect claim will have been made with the intention of defrauding. However, HMRC has confirmed that irrespective of whether overpayment claims were made innocently or deliberately, it will be seeking to recover any sums that should not have been paid. The amnesty window for correcting excessive claims has now expired, which means HMRC will be looking to charge financial penalties on those that submitted inaccurate claims.

with existing inaccuracy penalties, HMRC has no legislative power to offer penalty suspension.

Consequently, even entirely innocent errors could potentially result in employers being detrimentally affected if the position is not rectified and robust representations are not made regarding your knowledge of any over claim.

Employers really ought to be testing the accuracy of their claims and making disclosures where appropriate. The importance of framing your disclosure correctly cannot be stressed enough.

In cases where HMRC does not accept that the disclosure is complete, it may still charge financial penalties, and even consider criminal prosecution if it determines that the disclosure was knowingly submitted inaccurately.

With this in mind, now is the time to act if you do have any concerns over the accuracy of your furlough claims. Anyone affected should consider appointing disclosure specialists who can ensure that penalties are kept to a minimum while also guaranteeing that HMRC does not recover any more money than it is lawfully entitled to.

How we can help Buzzacott’s award-winning Tax Investigations and Dispute Resolution team have built a reputation for making expert disclosures on behalf of clients. Our expert knowledge of HMRC’s policy and procedures means that our clients regularly avoid unnecessary tax, interest or penalties.

Penalty HMRC will be entitled to charge a penalty of up to 100% of the overpayment that the employer received and could publish your details as a deliberate defaulter. HMRC will take account of your knowledge at the time of the offence when adjudicating the level of penalty, but unlike

For a free and entirely confidential discussion regarding how we can help you correct any inaccuracies in your CJRS claims, please do not hesitate to give us a call on +44 (0)20 7710 3389 or email taxinvestigations@buzzacott.co.uk.

About the author Joe is a Manager in Buzzacott’s Tax Investigations & Dispute Resolution team. As a former HMRC inspector, he has in-depth knowledge of HMRC’s statutory powers and how these are used in practice.

Joe uses his unique experience to help minimise his clients’ potential exposure to unnecessary tax and penalties.

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Why you should review your tipping practices before reopening With the return to normality looking more promising, many businesses in the hospitality sector will be preparing for the dates when they can reopen their doors to the public. As part of this preparation, Samantha Newton reveals why now is the ideal time to review your current tipping practices.

Life before tronc Employer

Life after tronc

Employee

Pays £20 tax Pays £13.80

National Insurance contributions

A

Why review your tipping practices?

Even in normal times, your tipping practices should be regularly reviewed and updated to ensure they’re efficient. Practices that are dated may lend themselves to unnecessary tax or National Insurance Contributions (NICs) at a cost to staff or you, the employer. If they are outdated, they most certainly will not be the fairest or the most transparent way of distributing tips among your employees.

Over the last year, a regular review of your tipping practices has possibly dropped down the list of your priorities. However, with businesses quiet or even at a standstill, we would advise making the most of this time to conduct a review while you’re without distraction and updates can be implemented quicker than usual.

One of the simplest options to bring your tipping arrangements up to date, and seamlessly retain more cash by removing the need to pay NICs, is a tronc.

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What is a tronc scheme?

A tronc, also known as a tronc scheme or tronc system, is a special payment arrangement that lets £20 gratuities, and businesses fairly distribute staff tips, tax collected

by HMRC service charges given by(£20 customers.

The benefits of + £12 + £13.80) implementing a tronc scheme include: • They offer significant savings to staff and businesses through exempt NICs • Staff can get up to 100% ownership of their hard-earned tips with a say in how they’re shared out • The arrangement can be genuinely independent, free from employer interference, run for the benefit of staff • They can improve staff motivation and retention as employees feel valued and rewarded How does a tronc scheme work?

Many employers decide to distribute gratuities by adding them to the general payroll. But, there’s a drawback: distributing gratuities in this way results in the extra being taxed as salary, meaning staff receive it net of income tax and NICs. Discretionary payments of tips allocated through a tronc scheme, where all qualifying conditions are met, are exempt from employers and employees making NICs. Given that employer and employee NICs total over 25%, this represents significant savings. Put simply, a tronc leaves everyone better off.

Employee

Pays £20 tax

Pays £12

National Insurance contributions

£68

s lockdown restrictions continue to be lifted throughout Spring, a full return to normality is anticipated by summer. Many businesses are growing in optimism about their longer-term prospects and are planning to use the next few months to prepare for their reopening. One aspect that should not be overlooked is tipping arrangements.

Employer

goes to the employee

How we can help Get in touch for assistance with updating your tipping system. We can review your existing tipping practices and highlight the cost savings available to both you and your staff if you run a tronc.

If you wish to implement a tronc, Buzzacott can manage the process and act as your independent troncmaster. As your appointed troncmaster, we’ll ensure you and your staff receive all the benefits mentioned earlier as well as provide the assurance that: • The tronc is not influenced by employers, nor by bias or favouritism, and represents what’s in the best interest of all employees • The distribution and pooling of tips is completely transparent for staff and you • The tronc remains in line with the latest HMRC policy changes ensuring you’re safeguarded from any HMRC challenge • Staff are relieved of the administrative burden of running the tronc and can focus solely on their daily tasks

£80

goes to the employee

Whether you’re a new or an established business, we can help you set up and implement your bespoke tronc scheme. For further information regarding a tronc scheme or reviewing your current tipping practices, please contact us on +44 (0)20 7710 3389 or email buzzacotttroncmaster@buzzacott. co.uk.

About the author Samantha is a Manager in Buzzacott’s Troncmaster Services team. She has the dayto-day responsibility for the management of our tronc portfolio and our specialist tronc staff. Samantha’s in-depth knowledge of tronc’s and HMRC’s procedures ensures our independent tronc schemes are ethical, bespoke and conform fully to HMRC rules.

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each certificate has its own number, which a worker can use to apply for a visa.

If the prospective employee’s visa application is granted, they may travel to the UK and start working.

EU employees already working in the UK on or before 31 December 2020, will have to apply for status under the EU Settlement Scheme by 30 June 2021 in order to continue living and working in the UK lawfully beyond 30 June 2021.

Penalties for non-compliance If you knowingly employ an illegal immigrant, or have ‘reasonable cause to believe’ the person doesn’t have the right to work in the UK and you still employ them, you could face unlimited fines and a prison sentence of up to five years.

Failing to carry out the proper checks can lead to fines of up to £20,000 for each employee working illegally in your business. You can also be disqualified as a director under these circumstances.

Additionally, your business is likely to suffer reputational damage if Immigration Enforcement publishes your details – a common practice to deter other businesses from taking on illegal immigrants.

How has Brexit changed international employment for the hospitality sector?

F

ollowing the UK’s withdrawal from the EU and an end to the freedom of movement, hospitality businesses will be required to take additional steps when sourcing employees from abroad. Immigration expert, Dipti Hirani explains what your business must do to remain compliant due to changes in legislation following Brexit.

Since the UK left the EU, the transition from a single market hasn’t been the smoothest. For the hospitality industry, an industry built entirely on its people, the process of hiring international staff has been made that little bit harder.

Where once any national of an EU member state could freely take up employment into the UK, EU, EEA and/or Swiss nationals are no longer allowed

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to move to the UK and work without a visa, and employers must hold an Immigration Sponsor Licence if they wish to sponsor the visas of EU employees who arrive in the UK to work.

What do businesses need to do?

In order to continue sourcing candidates from the EU, your business will need to take the following steps: 1. Check you’re eligible to get a licence 2. Choose the type of license you want to apply for.

This will depend on what type of worker you wish to sponsor 3. Decide who will manage sponsorship within the business 4. Apply online and pay the fee. The fee is

dependent on the type of licence(s) you’re applying for and the type and size of your business.

When making a sponsorship licence application, you will need to confirm how many employees you plan to recruit through the sponsorship system for the current financial year. For each employee you sponsor, the cost will be £199 in addition to the usual visa application fees. If successful, your licence will be valid for four years.

Once you have selected a candidate, you must endorse your prospective employee’s visa by requesting and then issuing an electronic Certificate of Sponsorship. You must assign a Certificate of Sponsorship to each foreign worker you employ and

How we can help you Buzzacott’s HR Consultancy team provide commercially focused HR advice and guidance, making our clients aware of any potential risks that might be associated with employment law.

If your organisation has concerns about the impact of Brexit or if you feel you would benefit from HR guidance and support, get in touch with a member of our team today on +44 (0)20 7556 1200 or email enquiries@buzzacott.co.uk.

About the author Dipti Hirani is a HR Consultant in Buzzacott’s HR Consultancy team. She is an expert on all immigration matters and ensures her client’s, in a wide range of industries and sectors, remain compliant with the latest UK legislation.

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Hospitality industry 2021 What happens now?

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ollowing a year like no other, what did we learn from 2020 and what should 2021 look like?

Simon Binder, Executive Chairman of Paperchase accountancy, explores whether the changes to consumer buying habits will continue into 2021 and how this may impact the hospitality sector.

As restrictions lift and consumers flood back into cafes and restaurants, you should continue to be creative by bringing innovation in-house. Tech provides a massive opportunity to improve consumer experiences and I recommend you explore the market.

Location Location for business has always been key and depending on where you’re based, I expect certain areas to return to normal trading levels sooner than others. For those that cater to consumers who enjoy going out to eat for social occasions, we will see a faster return to trade as the public begins to treat themselves as restrictions are lifted. On the flip side, city-based operations relying on office workers for their trade may struggle to return to previous highs as home working becomes common.

Finances Businesses need to stay in the market until conditions change, which means reducing overheads until revenues increase. Negotiating lower or no rents with landlords, taking advantage of the furlough scheme and its extension, cutting and controlling costs during COVID-19 restrictions are important considerations.

An easy-win would be to simplify menus to include higher margin plates when doors open again.

The professional knowledge and confidence they bring to the Troncmaster Services has been fantastic, and has given us the platform to use service charge so much more effectively for our business.

Larger chains may wish to seek specialist guidance on business functions such as accountancy, HR and marketing, who may be able to identify areas of improvement and help reduce costs.

By rewarding the right people at the right times and giving our employees confidence in the transparency and security of the tronc, we have better engagement and are able to target more productivity from our teams, which in turn generates rewards for all.”

Delivery services Many businesses were forced to diversify in 2020, offering deliveries, take-outs, meal kits, picnics, hampers, and pop-ups in order to survive. With Deliveroo, Uber Eats, and Just Eat revolutionising the market, I see delivery services continuing to thrive and being a steady stream of income for businesses.

While the larger, more established, delivery services include commission of up to 35% per delivery, businesses should continue to review additional services. New entrants to the market are offering ‘fixed cost’ delivery direct to the consumer at circa £5 per delivery, a game-changer for pubs and smaller businesses wanting to get into the delivery market.

Innovation Like delivery services, many businesses were innovative during lockdown and introduced popups, community kitchens, box schemes, and street food stalls, with pubs operating as local shops and take-aways. Getting food out to the consumer and the community by whatever means possible was the common thread linking all these ideas.

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Overview In the short term, the priority for businesses is to survive and making use of the COVID-19 support schemes will help. When restrictions lift, we cannot be certain whether consumer buying habits will revert to what they once were. However, businesses must continue to evolve in these changing times to meet consumer demands, and new ideas should not be shied away from.

“We moved to Buzzacott at the end of 2019 and have been nothing short of impressed.

Client

About the author Simon Binder has spent his entire working life in the hospitality sector as a restaurateur, a strategic consultant to the industry, as well as building some of the most iconic restaurant brands in the UK. Simon Binder is now Executive Chairman of Paperchase.

E info@pchase.co.uk T 020 8633 7700

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HMRC investigating Eat Out to Help Out claims HMRC has commenced checking Eat Out to Help Out claims to ensure their accuracy and recover any overpayments caused by careless errors or false claims. If you receive a ‘nudge letter’ from HMRC or are aware of any irregularities in your claim, specialist advice is strongly recommended to avoid formal compliance checks.

M

ore than 84,000 businesses registered with HMRC for the Eat Out to Help Out (EOHTO) scheme during August 2020. While HMRC operated a ‘pay now, check later’ policy to ensure EOTHO claimants were paid within five working days of any claim, HMRC is now checking claims to ensure their accuracy and recover any overpayments caused by either careless errors or false claims.

Why has my business received a letter?

HMRC will issue ‘nudge letters’ to approximately 4,000 businesses in the hospitality sector where it suspects incorrect claims have been made, urging claimants to check that their claims are correct.

Claimants will have 60 days to respond to HMRC or incur the risk of HMRC opening formal compliance checks. Those that receive the nudge letters must check the accuracy of their EOTHO claims and, if appropriate, repay some or all of the payments they received.

Repayments may be due because claimants: • Claimed for more EOTHO payments than they

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were entitled – this is based on the information HMRC holds about their business, the amounts claimed and the data HMRC holds about the payments they have received by credit and debit card.

• Have one or more EOTHO claims that appear inconsistent with other EOTHO claims made.

• Have not met the eligibility criteria to claim or receive EOTHO payments.

• Made a manual claim for EOTHO and other compliance risks were noted.

EOTHO claimants receiving the HMRC nudge letters may need to provide evidence with regards to the eligibility of their sales and their EOTHO calculations. Claimants who cooperate with HMRC and respond to the nudge letter within 60 days and voluntarily repay any overpaid EOTHO payments, making a full disclosure, will not be charged a penalty for the error in their claims. Claimants who do not cooperate and do not respond to HMRC’s nudge letter within the 60 days, leading to HMRC opening formal compliance checks, are likely to face statutory interest and penalties. In the more

serious cases involving fraud and criminal attacks, criminal prosecutions are expected.

If you have received a letter from HMRC regarding your EOTHO claim and need guidance on how best to handle your response to HMRC, please get in touch.

Errors in your claims?

If you’re yet to receive a nudge letter from HMRC but are aware of any irregularities in your EOTHO claims, the most effective means of reducing the financial penalty that you will pay to HMRC is by making a voluntary disclosure.

We have extensive experience in assisting clients who wish to make a voluntary and unprompted disclosure of errors in their tax affairs.

We will review your position and determine whether you received more than you were entitled to receive under the EOTHO scheme. If we identify that a disclosure is required, we will advise you of the best option for your circumstances and will

work with you to make that disclosure in the most cost-efficient way. We will also take steps, from the outset, to reduce the extent of any potential HMRC enquiry, and mitigate any financial and non-financial penalties that could be applied.

If you or someone you know would benefit from a no-obligation discussion with an award-winning tax disputes team, please do not hesitate to give us a call on +44 (0)20 7710 3389 or email taxinvestigations@buzzacott.co.uk.

About the author Mark is a Partner and heads up both Buzzacott’s Troncmaster Services and Tax Investigations & Dispute Resolution teams.

He’s a former HMRC inspector serving in all of HMRC’s elite civil and criminal investigation offices. Mark is a distinguished and recognised expert in all HMRC civil and criminal tax investigation and dispute matters.

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2021 National Living/Minimum Wage – ensure you’re compliant “We have used Buzzacott Troncmaster Services for just over two years now. We were initially concerned about moving from service charge to tronc payments for our staff, but I have to say the team provided and managed a very clear transition, which was to everyone’s benefit.

They are extremely professional, communicate very effectively and the integration with our payroll team has been excellent. We have not had a single issue with their service, which represents very good value for the monthly charge and I highly recommend them.”

David Needes, Director - Rock and Rose

ith the National Living/Minimum Wage set to rise from April 2021, hospitality businesses must enforce the new rates. Owen Russell shares how a National Living/Minimum Wage review can ensure your business remains compliant and avoids possible fines.

W

Finally, if you require your staff member (the worker) to purchase specific items, such as overalls, then any deductions made from employee pay or payments made to you (the employer) in respect of those items, will also need to be considered for National Living/Minimum Wage purposes.

The National Living/Minimum Wage is a statutory requirement for a minimum hourly wage to be paid to workers in the United Kingdom.

How can we help?

We provide hospitality businesses with assurance by offering National Living/Minimum Wage audits.

Our reviews will confirm the impact the proposed increases will have on your business, outline any concerns we may have, and advise you on the options available to ensure you meet the demands made by HMRC.

From April 2021, the National Living/Minimum Wage rates are as follows: • The rate for workers aged 23 and over will increase from £8.72 to £8.91 • The rate for 21-22 years olds will increase from £8.20 to £8.36 • The rate for 18-20 years olds will increase from £6.45 to £6.56 • The rate for 16-17 years olds will increase from £4.55 to £4.62 • The apprentice rate (for apprentices aged under 19 or in their first year of apprenticeship) will increase from £4.15 to £4.30.

Due to COVID-19, the rate increases aren’t as high as previous years. However, the increase of 2.2% from £8.72 to £8.91 will be extended to ages 23 and 24 for the first time.

Failure to correctly meet and operate the new rates is not an option. If identified by HMRC, your organisation could be issued with severe penalties and be named and shamed on HMRC’s website.

This applies to businesses with arrears of more than £500 in National Living/Minimum Wage payments to their workforce.

For businesses operating tronc schemes, allocations from tronc cannot count towards the National Living/Minimum Wage.

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If your organisation operates a tronc scheme, upon request, we’ll analyse your existing processes and provide a detailed report highlighting whether your arrangement correctly provides an exemption to National Insurance Contributions.

For further information regarding a National Living/ Minimum Wage review, please contact us on +44 (0)20 7710 3389 or email buzzacotttroncmaster@ buzzacott.co.uk.

About the author Owen is a Senior Associate in Buzzacott’s Troncmaster Services team. He helps businesses implement ethical tronc schemes that fairly distribute tips given by customers.

In doing so, he provides clients with tronc schemes that operate according to HMRC guidelines, ensuring national insurance is exempt on all allocations, helping clients to retain their staff.

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Directory About us People trust Buzzacott. We blend pragmatism with the insightful knowledge of an industry leader, driven by attention to detail.

We’re big enough to display deep knowledge over a broad range of specialisms and small enough to understand the power of personal connections. The values we identify with, the consistency of our advice and our ability to tailor-make solutions means that Buzzacott can be trusted to do the right thing.

Contact details www.buzzacott.co.uk Email enquiries@buzzacott.co.uk Phone +44 (0)20 7556 1200 LinkedIn: www.linkedin.com/company/buzzacott Twitter: @BuzzacottLLP Office address Buzzacott LLP 130 Wood Street London EC2V 6DL This document is prepared to keep readers abreast of current developments, but is not intended to be a comprehensive statement of law or current practice. Professional advice should be taken in light of your personal circumstances before any action is taken or refrained from. No liability is accepted for the opinions it contains, or for any errors or omissions. Buzzacott LLP is a limited liability partnership and is registered in England and Wales with registered number OC329687. Registered office is 130 Wood Street, London EC2V 6DL. © Buzzacott LLP 2021. All rights reserved

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