Electronic Sales Suppression: HMRC’s New Warning to Businesses
As part of its continued efforts to tackle Electronic Sales Suppression (“ESS”), HMRC has launched a new One to Many letter campaign targeting individuals and businesses suspected of using tools to under-report their income.
What is ESS?
ESS, commonly referred to as till fraud, involves the manipulation of electronic point-of-sale systems to hide sales and evade tax. An ESS tool can be any type of physical device, software, code, digital data, or any other tool which can suppress electronic sales records.
New powers in the Finance Act 2022 introduced significant penalties of up to £50,000 for persons who make, supply, or otherwise promote ESS tools. Penalties were also introduced for the mere the possession of, or failure to remove an ESS tool.
HMRC’s information powers have also strengthened, providing specific legal powers for HMRC to demand information pertaining to ESS.
What the letter means for recipients
HMRC is writing to businesses it believes have used ESS tools but have not yet made a disclosure under the ESS Disclosure Facility. HMRC state that this is the final opportunity to make an ESS disclosure, indicating that a failure to respond will result in the issue of estimated assessments.
It is therefore imperative that appropriate advice is taken in order to respond to HMRC’s correspondence prior to the issue of assessments.
Options for disclosure
- Recipients are directed to disclose any undeclared sales within 30 days via HMRC’s online ESS disclosure service. Those who believe they have nothing to declare are asked to submit a nil disclosure.
- HMRC has emphasised that making a false or incomplete disclosure could lead to penalties of up to 100% of the unpaid tax, and, in severe cases, criminal investigation.
- Whilst the ESS Disclosure Facility is the primary method to regularise irregularities, where deliberate tax fraud is involved, businesses should instead consider making a disclosure via the Contractual Disclosure Facility (“CDF”) / Code of Practice 9 (“COP9”). This is as a disclosure to HMRC under the CDF provides immunity from criminal prosecution, provided such a disclosure is complete and honest.
Considerations beyond suppressed sales
HMRC is also aware of any wider tax implications arising from supressed sales, in particular how the unpaid income has been utilised. For example, if the undisclosed income has been used to purchase investments or property, the associated dividends, gains, and any other income will also need to be disclosed.
Professional guidance for businesses and advisers
Handling tax fraud disclosures and HMRC investigations requires specialist expertise. The Chartered Institute of Taxation (CIOT) advises tax professionals to ensure they have the necessary competence to assist clients. If in doubt, seeking specialist advice from a tax dispute specialist is strongly recommended to ensure compliance with Professional Conduct in Relation to Taxation (PCRT).
Failure to respond to HMRC’s letter within 30 days can result in serious repercussions, including:
- The opening of formal investigations, including a full audit of business records
- The issuing of estimated / ‘best-judgement’ assessments and penalties
- The commencement of a criminal investigation
How we can help
Our team of experienced Tax Investigation Consultants are well-equipped to assist businesses and advisers in navigating HMRC’s ESS disclosure process. We are able to conduct a complete review of your tax affairs to identify any inaccuracies that may need to be disclosed, and to manage the disclosure process to minimise your exposure to unnecessary tax, interest, and penalties.
If you or your client have received an HMRC One to Many letter or have concerns about your tax compliance, contact Nicholas McLeman for expert assistance.
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