HMRC calls for evidence on electronic sales suppression

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HMRC has unveiled a new consultation on electronic sales suppression (ESS), a tax evasion technique predicated on artificially reducing reported sales and the corresponding tax liability.

ESS is where businesses manipulate electronic records of sales data, either during or after the point of sale, in order to hide or reduce the value of individual transactions. This is done to reduce the recorded turnover of the business and corresponding tax liabilities, while providing what appears to be a credible and compliant audit trail.

And nestled in the consultation document, HMRC makes quite the accusation: “In recent years, it has become apparent that some software developers are developing EPoS [electronic point of sale] systems that deliberately suppress sales in order to facilitate tax evasion.”
 

If that’s indeed the case, it’s no wonder that the tax authority is seeking evidence on the matter. The government published a call for evidence on ESS in December to gather insight from the public, businesses and software developers to improve its understanding of the nature and scale of ESS.

Speaking to AccountingWEB, an HMRC spokesperson explained that the tax authority had uncovered examples of PoS systems that “contain hidden functionality designed to artificially reduce recorded sales”.

In one particularly dastardly example flagged by the tax authority, upon touching a blank area of a till screen a new menu opened up which asked the user to input a figure which would reduce the total of their takings by for that day, week or month.

The user entered the amount they wanted and the system itself identified and omitted sales from the company’s database and transaction logs to as close to the specified amount as possible. The system then reordered and renumbered the transaction logs within the database to create what could pass as a credible record of sales.

In another, less sophisticated example from the hospitality industry, HMRC encountered a restaurant till system which asked the user to confirm which tables they wanted to include within the daily takings report. This allowed the user to print out reports which appeared to show all the day’s takings and covers, but only represented a proportion of the total business for the day.

“These reports were then presented to HMRC as evidence of what the businesses tax liabilities should be (although these reports did not correspond with the information on the business’ underlying till system database, so this evasion activity was easier to identify than the retail example),” said the HMRC spokesperson.

Another example proffered by HMRC involved a software program called a "zapper". Often untraceable as it is accessed via a USB flash drive, the zapper accesses POS system records and allows businesses to alter records so as to make it credibly appear that fewer transactions have occurred than has actually been the case.

But the spokesperson added that while HMRC’s operational experience suggests that ESS is a growing area of tax evasion, precise estimates of the scale of evasion are difficult to calculate. Hence the call for evidence, which will try to understand the ESS phenomenon further, and how HMRC can fight back against it.

The call for evidence is open until 20 March 2019 and can be found here.  

 

About Francois Badenhorst

Francois

I'm AccountingWEB's business editor. Feel free to get in touch with comments, tips, scoops or irreverent banter. 

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09th Jan 2019 17:07

This surprises me not at all.

Its just a slightly fancier version of the standard till trick for a cash payment, of putting through the order, taking the cash and pressing cancel.

See all pretty much any pub or takeaway!

Puts a completely mockery of course on HMRC's over reliance on electronic data as being correct.

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10th Jan 2019 10:54

How about a new law along the lines of all directors of companies making POS software will be sent to jail for 10 years if their software does not record on one audit trail every entry made?

That should do it.

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By 7555775
to North East Accountant
11th Jan 2019 14:13

I think you'll find they already do. but like most things there's always a back door.

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10th Jan 2019 11:16

Sadly a good idea but I would suggest that developers of this type of software are probally not all UK based.

Making Tax Digial will get rid of this problem according to HMRC.......

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10th Jan 2019 11:23

So exactly how is going digital going to reduce the tax gap?

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10th Jan 2019 11:54

The immediate thought is "show me the system, I will show you how to game it" - but I am surprised that this gaming is encouraged by the Software Providers. Once identified HMRC might ask for the name of the software used by the Business/Individual and compare to their list of miscreants.

A secondary thought is that once "cash" is replaced by "electronic payment" the EPOS will need to reconcile to the banking. On this point we begin to see how it can be then seen to be a "cash" issue. However, the existence of secondary banking would permit the Used Car favourite of keeping two sets of accounts, and even Electronic payment could be diverted.

In time however Digital will increase the power of tax authorities to reduce the potential for fraud. Reduce but not eradicate.

B word warning - With HMRC focused on Brexit now might be the time for Cash businesses to make hay! Not quite taking back control that was envisaged is it.

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10th Jan 2019 12:06

I agree, this is just the same old cash issue.
Electronic payments are reducing this problem year on year which is perhaps why the tax take is currently more than forecasted by the government!

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By 7555775
11th Jan 2019 14:12

I put a new electronic till in a pub 12 years ago, it was possible to edit the audit trail if you were an administrator and rooted around a bit. This is nothing new. All I see is HMRC picking on small businesses yet again. The simplest way to not record sales is to not put them through the till, void or cancel them if you already have them in the till or use another till for cash takings only. Editing that audit trail is probably the last thing you would do and is probably no different to any accounting software if you know how. I did see a similar till to the one I installed in another place and the staff added up what they thought in their heads and then threw the cash in the till without pressing any buttons.

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By paul08
13th Jan 2019 16:50

Not surprised in the slightest. I work in industry for a very honest company, I don't know how I'd cope working in practice. I know a lot of self employed people, in face one of my best friends gets tax credits but manages to have nearly 100k in cars bought outright and a large house whilst working as a "struggling" plaster and supporting his wife and 2 children. I personally feel this is disgusting, but theres so many local examples of this, even oil rig workers claiming they earn £30k a year :(

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