Internal Revenue documents, seen by Accountancy Age, reveal that the South East district of the Revenue has been practising the technique successfully for nine months.
Codenamed SORTED (Special Operation Reviewing Targeted Entertainment Data), the project targets events such as Medieval evenings, hot air ballooning and wine tours which client organisations may have claimed as staff training expenditure, allowable for tax purposes.
‘We are of the opinion that those companies entertaining on any scale are likely to be generous towards their staff and directors and worthy of review,’ the document states.
Acting on local knowledge, information in the Yellow Pages or tip-offs from National Insurance and VAT inspectors, taxmen have arranged meetings with corporate hospitality or event management organisations, pretending to undertake routine PAYE audits.
Unaware of the threat, companies have volunteered client information and allowed access to client sales records.
And the Revenue has gleaned information to target these companies by checking sales invoices – even though ‘it is doubtful under Regulation 55 whether we have a legal right to look at sales invoices’, the document says.
‘This type of sting operation is highly dubious and companies throughout the UK should be aware of the threat,’ said Baker Tilly tax partner Chris Chadburn, a former district inspector.
‘The Inland Revenue has no right to obtain this kind of information when inspecting PAYE or NIC records. The Revenue is relying on the ignorance and goodwill of companies to obtain details about their clients activities.