HMRC is encouraging businesses that are using electronic sales suppression tools to evade tax to come forward and pre-register for a disclosure facility that will open in January 2023.
rom 6 January 2023 taxpayers who have used electronic sales suppression (ESS) tools to reduce their tax liabilities will be able to make a formal disclosure to HMRC.
ESS (in this context) refers to the use of software or hardware tools used to manipulate sales recorded by an electronic point of sale (EPOS) device, such as a shop till. It’s the modern equivalent of cash-in-hand sales that are never put through the business’ books.
Using ESS tools, the sales records can be manipulated either at the point of sale or later to supress certain sales, leaving a credible and apparently complete audit trail. To ensure the trader’s bank receipts match the total amount of sales recorded by the till, the card payments for those missing sales are routed through an offshore bank account. In this way, both the record of the sale and the revenue disappear from the business records.
The trader may not be aware (or admit) that their till has been programmed to suppress sales, and if they are aware of the ESS, they may not realise that such action amounts to tax evasion.
HMRC was given extra powers to tackle ESS in FA 2022, schedule 14, including the power to obtain details of ESS software developers’ source code and the structure of data within an end of period statement (EPOS) system.
There are new ESS offences relating to the possession, making, supplying and promotion of ESS software or hardware, and the penalties relating to those offences are set out in the ESS compliance factsheet: CC/FS68.
Promoters and suppliers of ESS tools can be hit with penalties of up to £50,000 per ESS tool provided when they do any of the following:
- Make an ESS tool
- Modify a non-ESS tool so that it becomes an ESS tool
- Supply an ESS tool to another person
- Promote an ESS tool, – in other words, give information to another person so that they are able to use an ESS tool.
hose who use or have ESS tools in their possession can receive an initial fixed penalty up to £1,000. However, HMRC will first write to the trader asking them to remove the ESS tool. If the trader does this to the satisfaction of HMRC, they will escape a fixed penalty.
However, if the trader does not remove the ESS tool when requested to or has been charged an ESS penalty in the past five years, HMRC will impose a fixed penalty plus daily penalties of up to £75 for each day of delay in removing the ESS tool.
Earlier this month HMRC’s fraud department raided nine businesses across the UK as part of a joint international probe into ESS tool distribution that also saw businesses visited in Australia and USA. HMRC disclosed that the operation was focused on an ESS system designed and sold by a group in Staffordshire.
This follows an investigation by HMRC into ESS suppliers in May 2022 when three people were arrested and computers, digital devices, and paperwork were seized.
HMRC has stated that it has sufficient data that will enable it to identify thousands of users of ESS tools.
It is encouraging those businesses who are using ESS tools to evade tax to come forward and pre-register for a disclosure facility that will open in January 2023. This can be done by completing an online form.
The special ESS disclosure facility will be open from 6 January to 28 February 2023. HMRC says that if the pre-registration form above is submitted on or before 5 January 2023 HMRC will contact the person submitting it to explain how to make the disclosure. The business will have to provide details in the disclosure of the total sales for the periods in which it has been using the ESS tool, and the value of sales that have not been declared for those periods.
HMRC will charge penalties for any inaccuracies and late tax payments where tax has been underpaid due to the operation of ESS tools, but those penalties may be reduced if the taxpayer comes forward with a voluntary disclosure.
A Three-Letter Note
HMRC loves a TLA (three-letter acronym). It seems that any new tax procedure, scheme, or tool has to be awarded its own TLA. Thus, electronic sales suppression becomes: ESS.
Unfortunately, ESS is already widely used in several alternative tax and accounting contexts, for example:
- Employee shareholder status – a tax-advantaged share scheme that ran from 1 September 2013 to 1 December 2016
- Extra support services – HMRC team that helps the digitally excluded and other taxpayers who need more support to comply with their tax obligations
- Enterprise software systems – a brand of software
- Employee self service – a function within certain types of payroll software.