HM Revenue & Customs (HMRC) have released a disclosure facility, available until 9 April 2023 for businesses that have used electronic tools to disguise or manipulate sales records.
Known as Electronic Sales Suppression (ESS), this approach has been used by taxpayers to evade tax by reducing the recorded turnover whilst providing what appears to be a credible audit trail.
What is ESS
The act of using a tool to conceal or diminish the value of specific transactions in electronic sales records is known as sales suppression. It is commonly conducted by businesses through the use of ESS tools. By doing so, the records of these businesses can appear to be accurate and comprehensive.
What are HMRC’s powers and when may they charge a penalty?
Legislation provides HMRC with the power to obtain information from a business to determine the following:
- To determine whether a relevant person has produced, distributed, promoted, or owns an ESS tool, which could result in a penalty being imposed on that individual.
- To comprehend the workings of an ESS tool.
- To identify any other individual who has created, distributed, promoted, or owns an ESS tool.
If an information notice is issued, the recipient must provide the requested information. Failure to comply may result in penalties being imposed.
HMRC can issue a penalty if it finds out that you:
- Are ‘in possession’ of an ESS tool; or
- Made, supplied, or promoted an ESS tool.
The tool does not need to be used in order for HMRC to charge a penalty.
How significant is the penalty?
If you are found in possession of an ESS tool, the initial penalty is up to £1,000, the penalty will be determined by the severity of offence and cooperation in removing the tool.
In addition, daily penalties up to £75 per day may also be imposed.
If an ESS penalty has been imposed within the past five years, HMRC’s policy is to charge the full £1,000 penalty. Following this, the daily penalty will normally be £75.
The penalties for promoting ESS tools are more severe. A penalty of up to £50,000 may be imposed for each instance of involvement with an ESS tool, including any instance of production or supply.
What to do if you receive a penalty notice
Once HMRC has reviewed any information provided, it will issue a penalty assessment notice, indicating the amount being charged and how this was determined.
If there are any aspects of the penalty that you do not agree with or if you possess any information that you feel has been overlooked, you should seek professional advice and contact HMRC.
What can you do to reduce any penalties for use of an ESS?
HMRC have released a form enabling you to tell them about any tax you owe as a result of using till systems to reduce your tax bill.
Disclosures can be made up to 9 April 2023.
The disclosure form is available here.
If you have ever used an ESS tool, it is important that you seek professional advice immediately in order to disclose this to HMRC.