London's oldest French restaurant, Mon Plaisir, could go bust following a demand for £400,000 from the Inland Revenue's (IR) tronc inspectors.
Alain Lhermitte, who has owned the Covent Garden restaurant for more than 30 years, is facing a massive bill in national insurance back-payment after inspectors decided that the restaurant's tronc scheme had been run incorrectly.
So far, Lhermitte has been unable to reach a compromise with the IR, despite having spent more than £50,000 on legal and accountancy fees.
IR regulations state that tronc schemes must not be operated by a member of management. However, Lhermitte said the IR had sent him a letter in 1998 approving his son Philippe as tronc master, even though he was restaurant manager at the time.
"We knew that there was to be no connection between the tronc and the management, but because we are a small family business my son became the tronc master. I received a letter from the IR which said that Philippe was allowed to run the tronc, but now they won't accept it," he said.
"If I were trying to screw the system, I could understand, but we've always kept the tronc in a separate bank account and I've never touched it. If the IR make me pay the money, I will go bankrupt."
David Moore, owner of the two-Michelin-starred Pied à Terre restaurant in London, who received a demand for £200,000-worth of backdated national insurance contributions following an IR investigation, has recently settled at a lower figure after protracted negotiation.
Moore said: "Ten years ago we took some incorrect advice on how to set up our tronc and were given a bill for £200,000. We settled at a lower figure, even though we could have disputed further. If we got it wrong, we would have had to stand the full weight of the assessment and close the restaurant down."
Search for a solution
Since the Inland Revenue started investigating, business consultants PricewaterhouseCoopers (PWC) along with the British Hospitality Association (BHA) and the Restaurant Association have been holding discussions to agree a way forward on the issue.
Richard Clarke, a tax investigations specialist at PWC, says that the IR's view on tronc schemes isn't unchallengable and that smaller businesses should consider lobbying through the BHA to reach a practical settlement.
He said: "Despite their apparent confidence, the IR are prepared to compromise. My advice to smaller businesses is to involve the BHA, because it has access to a lot of knowledge and resources."
Source: Caterer & Hotelkeeper magazine, 9 - 15 October 2003