New ESS Disclosure Facility Offered By HMRC For Tax Evaders
On the 12th of December 2022, HM Revenue and Customs (HMRC) announced that it would offer a new disclosure facility. This time, the opportunity is being afforded to those involved in Electronic Sales Suppression (ESS) to make a voluntary disclosure to HMRC and correct their records and pay any tax due.
In recent years, HMRC has offered various disclosure facilities to sectors they suspect of non-compliance. The purpose of these facilities is to allow taxpayers who may not have reported all of their income to ‘come clean’. Those who use the relevant facility benefit from lower penalties, with HMRC warning that those who don’t and are then approached by HMRC and found to have underpaid tax, likely to face harsher penalties and potential prosecution.
Disclosure campaigns have targeted medical practitioners, barristers and the legal profession as well as plumbers and electricians. Whilst those campaigns have closed, HMRC has kept the Let Property Campaign and the Worldwide disclosure facilities open and continue to accept disclosures through these. It is therefore notable that the new ESS Disclosure facility provides such a short window in which to make a disclosure, with registration required by 5th January 2023 and the disclosure made by 28th February 2023.
What is Electronic Sales Suppression?
Electronic Sales Suppression (ESS) is where businesses use software or other means to manipulate their sales and thereby evade paying tax on those takings. An HMRC spokesman explained that they are aware of a sophisticated system whereby sales are put through the till as normal, but the system allows sales to be deleted and routes card payments through an offshore bank. The reason this type of fraud is of particular concern is that not only does it deliberately hide transactions and sales records, but it also provides a seemingly compliant and correct audit trail.
How Big is This?
During the last few weeks of 2022, HMRC arrested five people suspected of involvement in what they have termed a multi-million-pound global fraud operation. The recent arrests follow on from an operation in May 2022 in which three people suspected of involvement in ESS fraud were arrested. HMRC’s Director of Fraud Investigation, Simon York, has called this a “highly sophisticated, truly global attack” and says that the group behind this activity is suspected of enabling thousands of businesses to evade tax in what is a large-scale, technologically-enabled fraud operation.
The arrests are the result of a long period of government interest in this area. A call for evidence on ESS was held from December 2018 to March 2019. HMRC followed this with the introduction of specific ESS legislative powers in the Finance Bill 2021-22 to tackle this type of fraud. These powers are mainly information powers and provide HMRC with insight into the distribution and use of the software, as well as inspection powers to allow HMRC to uncover fraud.
HMRC appear to have used their powers and their time in building knowledge around this, and an extensive investigation and intelligence operation led to an international probe with enforcement action taken in the UK, US and Australia. More than 100 HMRC officers visited 90 businesses across England, Scotland and Wales in a week of coordinated action.
The Disclosure Facility
The signals HMRC are putting out are that they are confident the information they have is accurate and reliable. Having put so many resources and planning into tackling this fraud, it seems that HMRC are keen to commence their own tax investigations into businesses they suspect of electronic sales suppression, and it may be that this is the reason such a short period of time has been given to make a disclosure.
HMRC has warned that this is just the beginning of their work in this area and that they already have other suspected suppliers in their sights. A final word from Simon York, “HMRC has a voluntary disclosure facility and would encourage anyone using ESS to contact them. By making a disclosure now those deliberately misusing their till system could see their financial penalties reduced”.
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