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In the ever-evolving digital marketplace, businesses and regulators alike are increasingly grappling with a complex issue: Electronic Sales Suppression (ESS). This clandestine practice can significantly undermine tax revenues and create unfair competition. This blog aims to shed light on what ESS is, how it operates, and the serious implications it holds for both businesses and governments, especially for those under investigation.
What is Electronic Sales Suppression?
Electronic Sales Suppression refers to the use of software or hardware to manipulate point-of-sale (POS) systems, thereby underreporting sales and evading taxes. This illicit activity can take various forms, but the end goal is the same: to hide true sales figures and reduce tax liabilities.
For example, a business employing an ESS tool might conduct a transaction for £50, with the customer paying by card. The business would receive the full £50 payment. However, when generating sales records, that £50 transaction might be documented as a £20 sale or even excluded from the records entirely. When these manipulated sales records are used for accounting and tax return purposes, the ESS tool effectively creates a false accounting record, thereby artificially reducing the trader's tax liability.
Where Is Electronic Sales Suppression Typically Found Used?
Electronic Sales Suppression is prevalent in several sectors where transactions are frequent, and accurate record-keeping is essential. Restaurants and bars often deal with high volumes of cash transactions, making them prime targets for ESS tools to delete or alter sales records. Retail stores sometimes use ESS to create a second set of books, underreporting sales to evade taxes while maintaining internal records. Finally, businesses providing personal services, such as salons or repair shops, have been found to use ESS to underreport their cash earnings.
HMRC's Focus: One to Many Letters Campaign
HMRC has recently initiated a One to Many (OTM) letter campaign to address the issue of Electronic Sales Suppression (ESS). This campaign targets businesses suspected of using till systems to hide or reduce the value of individual transactions, thereby underreporting their sales and evading taxes. This practice constitutes tax fraud, as highlighted in HMRC's collection of guidance on GOV.UK.
The OTM letters, first issued on June 3, 2024, are directed at businesses that may not have paid the correct amount of Income Tax, Corporation Tax, and/or VAT due to the misuse of their till systems. The letters urge these businesses to voluntarily come forward and disclose any undeclared sales.
As stated in the letter, "If you do not come forward, HMRC will take further action which could mean a full audit of your business, opening a civil or criminal investigation and/or issuing an assessment of the tax they think is owed, including interest and penalties." This highlights the serious repercussions of ignoring the letter and the importance of addressing any discrepancies promptly.
For businesses and individuals, it is essential to navigate the disclosure process accurately and seek specialist advice when necessary. Tax Dispute Experts can guide you through the disclosure process, ensuring that the tight deadlines and accuracy of this disclosure facility are met.
What Should I Do?
If you are using ESS tools to underreport your takings, it is crucial to seek advice from a tax investigations specialist immediately. Voluntarily coming forward before HMRC initiates an investigation can result in more lenient penalties.
For some, the new disclosure facility may be suitable. However, if the ESS usage spans a significant period or involves a large volume of sales, it is advisable to consider making a disclosure under Code of Practice 9 (COP9) and the Contractual Disclosure Facility (CDF). Being accepted into the CDF process is the only way to ensure protection from criminal prosecution in serious cases.
How We Can Help
Navigating an HMRC investigation can be daunting, especially when dealing with complex issues like Electronic Sales Suppression. Our team of tax dispute experts are here to provide comprehensive support and guidance throughout the process.
Expert Advice: We offer detailed consultations to help you understand your situation and the best course of action.
Disclosure Assistance: Whether using the online process or the Contractual Disclosure Facility (CDF), we assist in preparing and submitting accurate disclosures to HMRC.
Investigation Support: If your business is under investigation, we provide expert representation and work to minimise potential penalties and legal repercussions.
Our goal is to help you resolve your tax issues efficiently and effectively, allowing you to focus on running your business.
Contact Us
Need assistance with an HMRC enquiry? Contact us today to speak with our Tax Dispute Experts and protect your interests.