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Cooking the books: Fast food faces taxman probe

The food might not be up to much but at least they know how to cook the books. But Britain's fast-food restaurants have been put on notice: the taxman is after them.

HMRC, under fire lately for approving supposed sweetheart deals with big firms such as Vodafone and Goldman Sachs, reckons it has found a tasty new target.

Spurred by a belief that fast-food firms in particular avoid proper VAT – either through administrative error or malign intent – tax inspectors have raided 85 such restaurants in the last six months. They said every establishment they checked was in error.

Typically, an establishment will dramatically over-report what percentage of sales are for food that is either cold or taken away –sales free of VAT. Hot food eaten in the restaurant should attract VAT at 20 per cent.

The tax officials claim to have found £9m of undeclared tax so far and predict they will collect many more millions as their probe develops.

So far, all of the restaurants targeted have been in London, but the campaign could soon go nationwide.

Sandra Wake, the compliance official spearheading the investigation, said: "There is a serious problem with some fast-food outlets deliberately falsifying their records to evade tax. We will come down hard on those who have chosen to break the rules."

Tax officials have declined to name guilty parties directly, but say it is not a case of small, family-run businesses getting it wrong. Multi-chained, large enterprises are also alleged to be cooking the books.

HMRC says the worst offender was an Italian restaurant that said 80 per cent of sales should be free of VAT. An investigation showed only 5 per cent of sales were VAT-free.

A typical excuse given by restaurant owners was that the tills were wrongly programmed. HMRC says some firms are guilty of criminal offences, which it intends to pursue.

The VAT rate was increased from 17.5 per cent at the start of 2011.