Electronic Sales Suppression – HMRC Crackdown in 2023

Electronic Sales Suppression

Broadly speaking, HMRC’s overall task is to collect tax on behalf of the Exchequer.  They do this through various safeguarding collection, compliance and enforcement activities.  To help them do this, they have been granted various powers to collect information not only on the UK’s populace, but also of individuals overseas that may be liable to UK tax.

Through information collected, HMRC will identify areas that are of particular concern.  They may be areas that are high risk such as industries where taking cash is common place (e.g. tax drivers, barbers, restaurants).

HMRC target these sectors through the use of ‘campaigns’.  Campaigns so far include ones to target plumbers, electricians, online marketing and, still ongoing, let properties.  Campaigns offer a chance for the taxpayer to voluntarily come forward and provide all information to HMRC and make a payment of tax.  As an incentive, HMRC is more likely to impose lower penalties on those who take steps to correct their tax position.

Misuse of Till Systems

A recent form published by HMRC (January 2023) allows taxpayers to inform them that they have been using till systems to reduce their tax bill.  They have named this practice ‘electronic sales suppression (ESS)’.  The following is HMRC’s explanation on what Electronic Sales Suppression is:

ESS is where a business uses a tool to either hide or reduce the value of individual transactions on its electronic sales records. We call this sales suppression. They do this either at, or after, the point of sale. Their records then appear to be correct and complete.

Businesses do this to reduce their turnover so that they pay less tax. They also do this to try to appear compliant.

They have described an Electronic Sales Suppression tool as:

a piece of software, computer code script or hardware. It allows a business to hide or reduce the value of individual transactions on its electronic sales records. This includes using and/or configuring a till, or point of sale (POS) system, in a way that suppresses sales.

This issue is not new to HMRC.  Indeed, they have been investigating the issues of Electronic Sales Suppression tools since 2019.  However, HMRC have now decided that it is time to come down on ESS users/suppliers with an iron fist.

Legislation has recently been amended which has allowed HMRC to begin their targeting, therefore it would be prudent for those involved in Electronic Sales Suppression to make a disclosure.  That is, all of those that are involved.  HMRC have been granted powers to enquire into the affairs of not just those using/supplying ESS tools, but also those who own a tool (so not necessarily using it) or even those who have tried to access a tool.

Users

HMRC can charge a penalty of £1,000 to those that are in possession, have obtained or have access to an ESS tool.  This penalty is applicable where the taxpayer has not satisfied the HMRC officer that the tool is no longer in their possession (or never was if applicable).  This penalty may also be charged where HMRC have previously issued a ESS penalty in the last five years.  In both instances, a daily penalty of £75 may apply where HMRC believes the taxpayer is still in possession of the tool.

It is highly likely that if a taxpayer has previously been caught out they will be on HMRC’s watchlist.

Suppliers

The penalty for making, supplying or promoting an Electronic Sales Suppression tool is up to £50,000.  This penalty applies to each tool.  The amount that is charged depends on the complexity of the tool and the quality of the disclosure.  This is partly why it is important that those involved in any disclosure to HMRC seek the advice of a specialist tax adviser first as they will be able to best present the information to HMRC.

Since 6 January 2023, users of an Electronic Sales Suppression tool have been able to make a disclosure to HMRC via an online form.  This follows a week of visits to a number of business in December 2023 by HMRC, whereby they have determined that potentially 1000s of business engage in this practice.

Electronic Sales Suppression users are now the target of HMRCs one-to-many letters.  The letter invites a taxpayer to come forth and make a disclosure.  If a taxpayer receives one of these from HMRC, then they have essentially lost their opportunity to make an ‘unprompted’ disclosure – the penalties will likely be higher in consequence although reductions are given for cooperation.

Disclosure

Making a disclosure to HMRC can be a extremely involved and complex procedure.  However, it is important that this is done right as penalties will be affected by the quality of the disclosure and, in some cases, even the taxpayers risk to criminal prosecution. There are various mechanisms in which a taxpayer could make a disclosure.  Where it is with regards to Electronic Sales Suppression, the taxpayer could consider using the online disclosure form.  However, if they are involved in suspected serious fraud, then the Contractual Disclosure Facility may be more beneficial to the taxpayer

If you have received a nudge letter from HMRC, or want to bring your tax affairs into order before you do, then contact a member of the team here

Related Articles

The pizza guy didn’t know HMRC obtain information from merchant acquirers

Nudge Letters and Worldwide Disclosure Facility FAQ

For more tax tips keep an eye on our social pages Facebook Instagram and LinkedIn