Electronic Sales Suppression tools

Since February 2022 HMRC has new investigation information powers and penalties in respect of Electronic Sales Suppression.  The powers and penalties apply to anyone involved in: making; supplying; promoting; owning; having access to; attempting to access; or using an Electronic Sales Suppression tool.  

What is an Electronic Sales Suppression tool?
An Electronic Sales Suppression (“ESS”) tool is a piece of computer software; code; script; or hardware that allows a business to fraudulently conceal the value of individual transactions in its electronic sales records - so that the turnover apparent from the records is lower than the actual sales.  Typically, this involves configuring a till (or electronic point of sale (EPOS) system) to suppress a percentage of sales from the records used to produce tax returns - whilst making them appear at first glance to be correct and complete.  This is known as “Electronic Sales Suppression”.  At face value the business will appear to be compliant regarding the recording of sales: but the turnover as declared to HMRC will be reduced - so that less VAT; Income Tax or Corporation Tax appears to be payable.  

Special penalty and information powers
Due to their specific concerns over this growing area of tax fraud HMRC have obtained special penalty and information powers to investigate and combat it.  

HMRC can now issue formal Information Notices in relation to ESS to any “relevant person”: i.e. someone who could be liable to a penalty for being involved in ESS. The penalties are explained further below.  Penalties can also be charged for failure to comply with an Information Notice.  In suitable cases appeals can be made against those penalties.

Penalties for being involved in ESS: General
HMRC can charge penalties if a person is: 

• in possession of;
• made, supplied, or promoted;
• owns;
• has access to; or
• tried to access 

an ESS tool.

The tool does not need to have been used to suppress sales or evade tax for HMRC to charge the penalty.  

There are two different methods for calculating the penalties. The first method applies to people in possession of an ESS tool.  The second method applies to those who made, supplied, or promoted such a tool.  

Penalties for Possession of an ESS tool
If HMRC suspect a person is in possession of an ESS tool, they will be told in writing to remove it or stop using it (and satisfy HMRC that the tool has been removed) within 30 days of that warning letter. Otherwise, an initial penalty of up £1,000 will be charged.  If an ESS penalty had already been charged in the previous 5 years the full £1,000 initial penalty will be charged immediately (i.e. there will be no 30-day period of grace).  

Where an initial penalty is levied, then daily penalties will also apply until HMRC have been satisfied that the person is no longer in possession of the ESS tool.  Daily penalties are up to £75 per day: with an over-riding maximum of £50,000.

If any tax payable has been under-declared then that will become due: along with further tax-geared penalties on that under-stated tax.  Criminal prosecution can also be considered.  

Penalties for: Making, Supplying, or Promoting an ESS tool
Penalties can be charged for: making; modifying; supplying; or promoting ESS tools. The maximum penalty is £50,000, per specific ESS tool.  

The penalties actually charged are usually subject to some reduction from the maximum. The percentage charged is based on a matrix of the complexity of the ESS tool, and on how much co-operation is given to HMRC (e.g. lower penalties are available in cases of unprompted disclosures, and in all cases penalties can be significantly reduced by a high-quality disclosure).  

Of the maximum £50,000 penalty: low complexity tools have a maximum penalty of 40%; medium complexity tools have a maximum penalty of 80% ; and high complexity tools have a maximum penalty of 100% of the maximum: i.e. £50,000.

Within those ranges unprompted disclosures can get lower penalties than prompted ones, and high-quality disclosures get lower penalties than cases of poor co-operation and assistance.  

Overall, the penalty ranges are as follows: 

• Low complexity: Unprompted disclosure: 10% to 40%: Prompted disclosure: 20% to 40%;
• Medium complexity: Unprompted disclosure: 30% to 80%: Prompted disclosure: 45% to 80%;
• High complexity : Unprompted disclosure: 50% to 100%%: Prompted disclosure: 70% to 100%.

High-quality disclosures include providing full details of any involvement in ESS: telling HMRC how the tool works; helping them identify others involved with the tool; and giving access to other relevant information.   

Where the period relating to the use of the tool is more than three years prior to the disclosure then generally the penalty reduction is restricted by 10% (e.g. for a prompted disclosure of a low complexity tool the minimum penalty would then be 30%).

Special Reduction
In certain exceptional circumstances a lower penalty can be charged by applying the Special Reduction.  

Appeals
Once HMRC have made a final decision it can be appealed against in writing within 30 days by:

• sending new information to HMRC and asking them to consider it;
• Requesting a Statutory Review: where the case papers are reviewed by an HMRC officer not previously involved in the matter;
• Applying to the independent Tax Tribunal to formally hear the appeal and issue a final decision om the matter.  

What does this mean to me?
If you have been involved in the use or supply of an Electronic Sales Suppression tool then you could face severe penalties. Penalties for users can be reduced substantially by the early removal of the tool. However, HMRC will still consider whether turnover or profits have been under-stated: and then seek to charge additional tax and penalties thereon. Prosecution can also be considered. If you have been involved in the supply of ESS tools then penalties can be severe: but can be reduced substantially by early and high-quality disclosures.

How can Lynam Tax Enquiry Experts help me?
We have decades of extensive practical experience in managing Tax Disclosures and Tax Fraud Investigations. If you have irregularities in your tax affairs, we can advise you on your best course of action. If appropriate, we will help you with any disclosure. We can reduce and usually eliminate the risk of prosecution.  We can obtain help you obtain significantly reduced penalties.  We can help get the best possible outcome for you, your business and your family.

*For a free, private, no obligation consultation, call

Paul Lynam: 0845 643 9997

Andrew Nutbrown: 07718 778710

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