Chinese takeaway

Posted: 23rd March 2012

Airport signA Chinese couple stopped at Glasgow Airport and found to be carrying £7,000 in cash have failed in their attempt to persuade the First-Tier Tax Tribunal that £680,000 subsequently found in a Chinese bank account was not the result of undeclared profits from their takeaway business.
As well as the cash, a bank statement from the Bank of China was found in the couple’s effects, which in turn triggered an HM Revenue and Customs (HMRC) investigation.
The couple claimed that the cash arose from ‘self-denial’ and inheritances, but HMRC and the Tax Tribunal were not persuaded by this argument. The couple now face assessments on undeclared tax for a period of 19 years.
In cases such as this, HMRC will attempt to compute the ‘true’ takings based on any purchase records they have to hand. They will also consider also the lifestyle of the couple.
The first under-declarations to be accounted for will be those in respect of VAT, which will be assessed with automatic penalties. Once the VAT shortfall is dealt with, HMRC can assess the undeclared profits.
Again, penalties will be payable. Where tax is collected late because of fraud or neglect on the part of the taxpayers, interest will be payable in addition to the penalties. Penalties are more severe if there is evidence of deliberate non-disclosure and non-cooperation by the taxpayers.
In this case, it is highly likely that most of the £680,000 will end up being paid to HMRC. HMRC’s code of practice on tax investigations can be found on its website.