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Tackling tax evasion due to Electronic Sales Suppression

Hayley Ives, Director, Tax Resolutions
People working at computer
New powers to address threats to the tax regime due to Electronic Sales Suppression (ESS) were announced in the recent Budget.
While the scale of evasion is difficult to quantify precisely given the concealed nature of this activity, HMRC is aware that ESS is a growing area of tax evasion that must be addressed.

The move to legislate against the risk of ESS demonstrates how seriously HMRC takes the threat and reflects the department’s determination to keep up with ever evolving technology to catch tax evaders.

What is Electronic Sales Suppression?

ESS can be used by businesses to manipulate electronic sales records during or after the point of sale.

Software and hardware can be obtained that hides or reduces the value of individual transactions to shrink the recorded turnover of the business, while providing what appears to be a credible and compliant audit trail. This, of course, reduces the business’s tax bill.

Such practices have the ability to cause huge damage to the Exchequer if left to continue unchecked.

A consultation on ESS was announced at Budget 2018, which ran between 19 December 2018 and 20 March 2019. The consultation document makes interesting reading and can be found here: HMRC Electronic Sales Suppression [pdf]

A number of Electronic Point Of Sale (EPOS) system manufacturers and software designers who responded to the consultation advised HMRC that some businesses openly asked for ESS functionality to be built into their till systems.

The main driver for using ESS technology appears to be to keep the business below the VAT registration threshold as well as reducing taxable profits.

The types of business which are viewed as high-risk include takeaway outlets, hospitality and retail.

What will change?

We are yet to see the draft legislation designed to combat tax evasion brought about by ESS, although we know the government will introduce new powers to make the possession, manufacture, distribution and promotion of ESS software and hardware an offence.

The new measures will enable HMRC to tackle tax evasion undertaken by businesses that use software and hardware to hide or reduce the value of transactions and the corresponding tax liabilities.

There will be new ESS specific information powers that will enable HMRC investigators to identify developers and suppliers in the ESS supply chain and access software developers’ source codes.

Penalties for deliberate and concealed understatements currently range between 30% and 100% of the lost tax, although such penalties are likely to be reviewed and possibly increased when the new legislation is introduced.

How Crowe can help

Businesses which have engaged in the use of ESS historically should seriously consider making a voluntary disclosure to HMRC using the Contractual Disclosure Facility to obtain immunity from prosecution and secure the lowest penalty loadings.

Crowe’s Tax Resolutions specialists have worked with numerous taxpayers and their agents to bring historic tax issues up to date. If you choose to work with us, you can expect that we will:

  • act as a buffer between you and HMRC so that you do not need to speak directly with HMRC
  • ensure that HMRC does not overstep the mark, for example, by making requests for data that HMRC is not entitled to
  • review the background of your case and identify all issues that need to be disclosed
  • advise on the most appropriate steps to ensure a full disclosure is made to HMRC to reduce the possibility of HMRC asking follow up questions
  • calculate the underpaid tax whilst ensuring all legitimate claims for tax relief / allowances are taken into account
  • advise you on the likely penalty position and consider all mitigating factors to reduce penalties as low as possible
  • liaise with third parties to obtain the data that is relevant to your disclosure.

Our team is approachable and provides a discreet and comprehensive service, giving you the confidence you need when dealing with a sensitive matter such as an HMRC investigation.

To discuss this further, contact Hayley Ives in the Tax Resolutions team.

Contact us

Hayley Ives
Hayley Ives
Director, Tax Resolutions
John Cassidy
John Cassidy
Partner, Tax Resolutions