HMRC puts businesses using electronic sales suppression on notice

The HM Revenue and Customs (HMRC) said it has increased efforts to target users of electronic sales suppression as it brings its new powers to bear on this form of tax evasion.

HMRC noted that electronic sales suppression (ESS) is known to be in use in various sectors, such as retail and hospitality, with some electronic point of sale (EPOS) system manufacturers and software designers revealing to the agency that businesses openly ask for ESS functionality to be built into their till systems.

Electronic sales suppression is a form of tax evasion where the business manipulates electronic sales records, either during or after the point of sale, to hide or reduce the value of individual transactions. This reduces the recorded turnover of the business and as a result, their tax liabilities, whilst still providing what appears to be a credible set of records.

“Tax evasion not only results in a loss of money for public services, but it also gives non-compliant businesses an unfair market advantage over their competitors who pay what they owe,” the agency said.

First announced in Spring Budget 2021, HMRC now has new powers to tackle ESS and penalise those who evade in this way. These powers came into effect in February this year, allowing HMRC to take stronger action against anyone found to be making, supplying or promoting ESS software and hardware, and businesses in possession of it.

“The clock is ticking for anyone who might utilise ESS software and hardware, as well as manufacturers of EPOS systems who create and sell ESS features. This equates to involvement in tax fraud, and is an offence committed when a person is knowingly concerned in the fraudulent evasion of tax or duty, by themselves or another person. This applies even if an individual gains nothing from their deliberate conduct,” HMRC explained in a statement.

The agency has already begun to take action and last month arrested three persons as part of a criminal investigation into the alleged supply of ESS software, following a day of action on 18 May when the officers visited 30 businesses, including shops, takeaways and restaurants, across nine counties.

HMRC said it will conduct more such days of action, and urged those who has knowingly been involved to consider limiting their potential liabilities by contacting HMRC and asking to use the Contractual Disclosure Facility (CDF).

You can ask HMRC to consider you for a CDF contract by filling in the contractual disclosure form, CDF1. You can use the CDF if you have deliberate behaviour to disclose which has led to a loss in any of the taxes, duties and payments administered by HMRC. You can disclose your deliberate behaviour in whatever capacity you have acted. If you make a complete, open and honest disclosure of all your deliberate behaviour, HMRC will not open a criminal investigation into your disclosure.

The legislation has built-in safeguards to protect any business, which may unknowingly possess ESS software, from penalties. If HMRC has reason to believe a business possesses ESS software, the first time this happens, the business is given a 30-day grace period to remove the software in order to avoid a penalty for possession. Businesses also have the right to appeal against penalties.

You can find out more about the CDF here.