August 14, 2013

If you’re a fan of TV cooking shows you are probably familiar with the scowl and frequent complaints of Master Chef Gordon Ramsay. He’s also the star of Hell’s Kitchen. Now that he’s under the scrutiny of the tax authorities in the United Kingdom, he may be feeling the heat more than ever.
Recently the former chief finance director of Ramsay’s company, Gordon Ramsay Holdings, sent an “explosive” memo to the tax authorities, implicating himself and the company in possible wrongdoing.

Trevor James was a government’s lead interrogator, tasked with examining Ramsay’s company back in 2005. The company was accused of misusing cash receipts from a tip fund, however, the charges were cleared and the matter closed.

James Switches Teams

A couple of years later, Ramsay recruited James to work in his accounting office. The team was headed then by Ramsay’s father-in-law, who Ramsay later fired after a bitter dispute. James then took the lead as chief finance director of the company, according to a report in the UK’s Daily Mail.

In 2010, Gordon Ramsay Holdings was investigated again on issues similar to the 2005 review. In his recent memo James now says, as part of the investigation, he withheld the truth from tax authorities in order to slash what would’ve been a seven-figure tax bill, and to reduce the company’s National Insurance bill.

James was fired under “mysterious circumstances” in May 2013, said the New York Daily News. Another source, reported that James quit after signing a “watertight gagging clause,” intended to prevent him from going public with any information about Gordon Ramsay Holdings.

What Did Ramsay Know?

It’s unclear whether the Master Chef knew the contents of the memo and if so, what he did about it. But Ramsay denies any wrongdoing and said he is going to “enormous expense” to clear his name. He has hired the tax firm of Deloitte, where five senior partners are there scouring 30,000 e-mails looking for information to help Ramsay’s case, said the New York Daily News.

Gordon Ramsay Holdings has acknowledged the tip fund may have been mishandled, but also states Ramsay himself did not take money from the fund. The tip fund, which held about £375,000 (roughly $580,200  U.S. currency) was used as partial employee compensation and was not reported to the tax authorities, according to the Daily Mail. The same report states Gordon Ramsay Holdings is on shaky financial ground with debts far in excess of cash assets.

“Complete and Utter Rubbish”

That’s what Ramsay calls the accusations. So far the charges are civil, but if serious tax evasion is uncovered, tax officials can file criminal charges which could result in jail time. Imagine if you will, Ramsay eating dinner behind bars. Pity the poor prison cook who prepares his meals!

The Lesson?

Tax authorities are well aware of businesses which traditionally have significant cash dealings. Under-reporting cash will cause them to recreate what you probably brought in, which may cost you more in the long run. Better to come clean and report accurately.

Update –  A spokesperson for Gordon Ramsay has added the following comment: “This investigation was triggered by Gordon when he became aware of certain actions and conduct of some employees when the business was run under previous management. Gordon voluntarily approached the HMRC when a note detailing these actions came to light.  The employees involved have since been dismissed and GRH continues to work with Deloitte and HMRC to conclude the matter.”