HM Revenue and Customs (HMRC) have a variety of methods for uncovering tax evasion and find sectors with substantial cash income, such as takeaway restaurants, a source of easy pickings warns Leanne Schneider-Rose, Partner, Sydney Mitchell LLP; as well as having industry comparisons (and algorithms which automatically pick out 'suspect' VAT returns for investigation), they undertake test purchases to check gross profit margin claims, keep watch on premises to count the number of customers and so on. By the time the owner of a takeaway becomes aware of the enquiry, there is often a very impressive body of evidence in the possession of HMRC.

This was how the owners of a kebab shop in London came to be assessed for £71,000 in VAT based on HMRC's calculation that they had under-declared the takings of their shop, which was run as a company. By the time the calculation had been made of the additional Corporation Tax due and the penalties were added, the total debt of the company, now in liquidation, was nearly £300,000.

Having a limited company normally operates to protect the directors from personal liability for the company's debts, but not in cases such as this. The two owners were given 'personal liability orders' for the company's liability to HMRC.

They have also both received disqualification orders preventing them from acting as directors of a limited company or participating in the management of a company for seven years.

As soon as you receive a notice that HMRC is enquiring into your company tax affairs , you should take professional advice. There can be serious legal and financial ramifications and skilled professional advice is important.

If you wish to discuss this or other legal dispute matter, please call Leanne Schneider-Rose, Partner, Sydney Mitchell LLP on  0121 698 2200

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