28 February 2023
Guidance published on 16 November 2022 details the powers HMRC has for tackling electronic sales suppression (ESS) fraud and the harsh penalties which can be levied. According to this guidance, ESS is a tool used to either hide or reduce the value of individual transactions on a business’s electronic sales records. HMRC believes that businesses use the tool to reduce their turnover and pay less tax, whilst appearing to remain compliant.
In an attempt to encourage taxpayers using the tool to come forward and correct their affairs, a new disclosure facility was launched on 9 December 2022 for ESS disclosures. Taxpayers were given 17 working days over the Christmas period to register their intention to make a disclosure by 5 January 2023. According to a Freedom of Information request submitted by RSM, HMRC received zero registrations from businesses who wanted to disclose misuse of their till team in this registration period. An unsurprising statistic in the circumstances.
The Freedom of Information request also confirmed that HMRC is aware of 24,724 past and present potential users of the ESS tool, although this figure is subject to change as HMRC already has other suspected suppliers in its sights.
The disappointing registration number has not deterred HMRC who confirmed that it is taking action to identify and stop users and promoters of these tools. A press release dated 9 December 2022 detailed how HMRC targeted a gang suspected of multi-million-pound global fraud and made five arrests. This was part of an international probe and shows that HMRC is taking this type of suppression of takings very seriously.
It is clear HMRC believes that there are potentially tens of thousands of taxpayers who have used an ESS tool to deliberately supress their income. What is also clear is that taxpayers have not rushed forward to disclose irregularities in their tax affairs and there must be a question of why. Is this because HMRC’s statistics of potential tax evaders is overestimated? Are users of the ESS tool even aware of the disclosure facility?
HMRC has confirmed it is still not too late to come forward and use the facility which remains open until 9 April 2023. Whatever the reason for the malaise, if a taxpayer has used an ESS tool, the message is to take advantage of the facility whilst it remains open. The alternative is HMRC taking formal action within its powers, including potential criminal prosecution if the circumstance warrants such action.