HMRC have published a new factsheet explaining the statutory powers for tackling Electronic Sales Suppression (ESS) and the penalties for those found in possession of ESS tools.
The government's recent Consultation on proposals that target Electronic Sales Suppression (ESS) indicates that HMRC remain concerned about how ESS tools are being used to evade tax.
HMRC's latest factsheet explains their statutory powers in relation to tackling possession of ESS tools.
- Schedule 14 of Finance Act 2022 contains the relevant legislation for ESS penalties and information gathering.
- It is particularly worth noting that HMRC can charge penalties for possessing an ESS tool even if it has not been used.
ESS refers to tools used to hide or reduce the value of sales recorded on electronic Point Of Sale (POS) systems.
- The use of such tools enables a business to understate its turnover while making its records appear to be complete.
- An ESS tool may include software, computer code, hardware or the configuration of a till or POS system that enables sales records to be suppressed.
Information powers
HMRC can issue an Information notice to a 'relevant person' for a 'relevant purpose'.
- A relevant person is someone who HMRC has reason to suspect is or may be liable to an ESS penalty.
- Relevant purposes are defined by law as:
- Determining whether the relevant person has made, supplied, promoted or possesses an ESS tool.
- Enabling HMRC to understand how an ESS tool works.
- Identifying others who may be involved in making, supplying, promoting or possessing an ESS tool.
Failing to comply with an information notice can result in being charged penalties.
How is 'possession' defined?
A person is considered to be in possession of an ESS tool if they:
- Own it.
- Have access to it.
- Try to access it.
What penalties can be charged for possession of an ESS tool?
If HMRC suspect that someone is in possession of an ESS tool, they will normally write to them requiring that the tool be removed or no longer used.
- The recipient must then satisfy HMRC that they are no longer in possession of the tool.
- This will include giving HMRC all the information they ask for so that they are satisfied the tool has been removed.
If HMRC are not satisfied that the tool has been removed, they will charge an initial fixed penalty which may be followed by daily penalties.
- An initial fixed penalty of up to £1,000 can be charged. HMRC will consider the efforts made to comply with their request in setting the amount.
- Daily penalties of up to £75 can also be imposed.
- Daily penalties will be charged until HMRC is satisfied that possession of the ESS tool has ended.
If HMRC have already charged an ESS penalty within the previous five years, they will immediately charge a full fixed penalty amount of £1,000 without first issuing a warning letter.
- The daily penalty rate in such cases will normally be £75 per day.
ESS penalties are separate from other penalties that HMRC may charge should ESS lead to an underpayment of tax. This includes penalties for inaccurate returns or failing to notify HMRC about needing to pay a specific tax.
Useful guides on this topic
Penalties: Electronic Sales Suppression
What penalties apply for till tampering or Electronic Sales Suppression (ESS)?
New proposals to tackle Electronic Sales Suppression
The government is consulting on potential measures that target Electronic Sales Suppression (ESS). Proposals include the introduction of new software standards for Point of Sale systems.
External link
Electronic sales suppression: possession of tools - CC/FS68A