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HMRC gets serious with ESS sales till fraud

HMRC gets serious with ESS sales till fraud


After taking an initial soft approach of inviting traders to confess if they have used electronic sales suppression (ESS) software in their sales tills, HMRC is now warning of investigations and penalties. 

5th May 2023
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What is ESS?

ESS software allows traders to hide trading income by not recording certain sales through the sales till and diverting any card payments for those transactions to a different bank account, which may be off-shore. In this way both the sale and the revenue never appear in the UK business record, leaving an apparently complete and correct electronic account to be reported to HMRC.

Businesses that possess ESS software can be subject to a fixed penalty of up to £1,000. Those who make, modify, supply or promote ESS software can be fined up to £50,000 for each copy of an ESS tool they provide or modify.    

HMRC has a list

Following raids on 90 businesses that create and market ESS software in the UK, HMRC put together a list of thousands of potential users of ESS tools.

HMRC is now using that information to write directly to the businesses on its list of ESS users, warning them that it has information that indicates the trader has misused their sales till to hide sales and reduce their tax bill. Each letter has a unique case reference.

The trader is invited to make a full disclosure of the undeclared sales and tax within 30 days of the date of the letter, using the new online disclosure portal especially set up for ESS tool users.

Serious trouble

Any trader in this position is in serious trouble as HMRC view the use of ESS software as tax fraud, which is a criminal offence, and it could prosecute.

However, in most cases, HMRC will pursue a civil settlement to recover the underpaid tax whether that is corporation tax, income tax, VAT, NIC, or all of those.

Making a voluntary disclosure does not absolve the business from the penalties likely to be imposed for:

  • Inaccurate VAT, corporation tax or income tax returns
  • Failure to notify registration for VAT, corporation tax or income tax
  • Off-shore non-compliance, where funds have been diverted off-shore.

These penalties will be at the higher end in all cases as the use of ESS software to suppress sales is a deliberate act, not a mistake.

Time is short

The HMRC letters give the taxpayer only 30 days to make the disclosure using the special online process set up for ESS declarations, so there is not much time to mull-over what to do.

If the taxpayer does not make a declaration within the time period given, HMRC will open an investigation and/ or issue tax assessments, in which case the penalties will be for prompted and deliberate behaviour, so even higher.  

Specialist advice

The Chartered Institute of Taxation (CIOT) is advising its members to think carefully about using the online ESS declaration, as this may not be the best route for the taxpayer to take. Where fraud is suspected the taxpayer may get more protection by using the Contractual Disclosure Facility (CDF) or Code of Practice 9 (COP9). Indeed an earlier Agent Update in May 2022 advised agents to direct their clients to use the CDF to make disclosures if they have been involved in any tax fraud or deliberate activity relating to ESS.

Tax advisers need to be aware that handling any HMRC enquiries relating to tax fraud is a specialist area. The Professional Conduct in Relation to Taxation (PCRT) recommends that a tax professional should obtain appropriate assistance from a suitably qualified specialist where they do not have the necessary expertise to deal with the matter themselves.   

Replies (5)

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By Hugo Fair
05th May 2023 15:58

"Following raids on 90 businesses that create and market ESS software in the UK, HMRC put together a list of thousands of potential users of ESS tools."

Sounds like those creators/marketeers didn't have total faith in their own software - else why would they have maintained 100% accurate records ready for HMRC to trawl through? :=)

Thanks (5)
By ireallyshouldknowthisbut
05th May 2023 16:42

Just the sort of thing HMRC should be doing.

But do they have the resources to follow this up properly? Or are they expecting fundamentally dishonest people to suddenly find a halo?

This is where the money should be spent, not on fantasy IT.

Thanks (9)
David Ross
By davidross
09th May 2023 12:08

In all the circumstances this looks like one case where HMRC has acted sensibly;

• Yes in an ideal World they would have an absolute army of investigators, but they don't
• Online Disclosure makes the taxpayer do all the work;

What we don't know is what happens to those who don't turn themselves in, and that is where HMRC traditionally fails. In the old days (pre Self Assessment) the Inspector would issue whacking great estimated assessments until the pips squeaked. I suppose that these days it would need the Human Resources that they don't have to deal with all the appeals.

The lack of a Big Stick makes the truly criminal people able to chance their arm with a good chance of not actually being caught. It was the same in 1997 when HMRC were SUPPOSED to crack down on Subbies who should be employees but put no resources behind enforcement. Wizard of Oz!

Thanks (0)
By hyper10
18th May 2023 11:21

My son at uni told me about the local Kebab shop who now only accept payments via cards, the best bit is, he has twice been asked to cancel payments and re pay on another terminal. He noted that depending on day or night, the terminal is either black or white.

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