Given HMRC’s increasing concerns about electronic sales suppression (ESS), the tax agency is launching a campaign of one-to-many letters, targeting businesses that may have outstanding taxes to pay after misusing their till systems to reduce their recorded sales.
ESS tools allow till systems to alter or hide individual transactions while creating a credible audit trail. This enables businesses to reduce their reported turnover and pay less tax – including Income Tax, Corporation Tax, and VAT – while appearing to be tax-compliant.
Using ESS software or hardware to adjust the value of transactions or only record a portion of sales, for example, is a form of tax evasion. HMRC is therefore sending informal warning letters to discourage this deception and ensure that any guilty parties make things right.
One-to-many ESS letter
Also known as ‘nudge letters’, HMRC sends one-to-many letters with the same information to taxpayers whose data suggests their tax affairs are incorrect. These letters prompt recipients to double-check their tax returns and rectify any issues as soon as possible.
Receiving a letter about electronic sales suppression gives the business the opportunity to voluntarily disclose under-reported sales, and explains what could happen if they don’t.
This can include progressive financial penalties, which may be reduced after full disclosure.
HMRC is expected to run this campaign of one-to-many ESS letters for at least the next year – but if your business is sent one of these letters, you must confirm your sales reports to HMRC within 30 days of receiving it, even if you believe your sales information to be correct.
Sales suppression penalties
Along with general penalties for providing inaccurate information, HMRC can also charge a penalty for being in possession of an ESS tool. This may be any type of software or hardware that a business can use to reduce or hide transaction values on electronic records, thereby suppressing sales.
Even if the business hasn’t used the ESS tool to suppress their sales, simply possessing it is enough to incur an initial penalty of £1,000. HMRC will then charge a £75 daily penalty from this point until the business proves they are no longer in possession of the ESS tool.
‘Possession’ in this case includes a business owning an ESS tool, having access to one, or trying to access one. Again, even if the business doesn’t proceed to use the tool, simply owning, accessing, or attempting to access an ESS tool means HMRC can take action against them.
How to avoid ESS penalties
To avoid receiving a penalty or scrutiny from HMRC, the best thing to do is to simply avoid ESS tools completely. This means that all businesses carrying out electronic sales should not:
- install an ESS tool to any device you own
- configure electronic point of sale (EPOS) system settings to activate an ESS tool
- access an ESS tool on a device owned by anyone else
You can find more information about electronic sales suppression on the government website.
Another way to ensure that HMRC has no reason to penalise your business is to keep comprehensive and accurate financial records to help you prove your compliance quickly.
Maintaining correct business records will also help to prevent genuine accidents in under-reporting turnover figures. If you have concerns about managing your accounts and filing accurate tax returns, you may be better off outsourcing your accounts to specialists.
At gbac, we have a skilled team of accountants in Barnsley who can provide a range of financial services to support business accounts. For more information about our digital accounting services, please call 01226 298 298, or send an email to info@gbac.co.uk and we’ll be in touch soon.