On 8 December 2022 HMRC announced the ESS disclosure facility aimed at businesses who have made use of technology which artificially suppresses their till sales, and therefore erroneously reduces their tax liabilities.
In the first week of December 2022 HMRC, following the sharing of information with tax authorities from other members of the Joint Chiefs of Global Tax Enforcement (J5), undertook a series of visits to businesses suspected of using electronic sales suppression (ESS) tools to deliberately pay less tax. In the week prior to announcing the time limited disclosure facility, HMRC visited over 90 businesses in England, Scotland and Wales. HMRC believe 1,000s of businesses are using ESS technology to artificially reduce their till sales.
How will the ESS disclosure facility work?
Any taxpayer wishing to make a disclosure must register before 5 January 2023. This registration of intent to make a disclosure to HMRC will be welcomed by HMRC and is likely to be reflected in any financial penalties subsequently levied.
The taxpayer can either register with HMRC directly themselves or, to better protect their position and ensure a full disclosure is made, instruct a suitably qualified and experienced Tax Disputes and Disclosures specialist before 5 January 2023 to do this for them.
Once the notification of disclosure has been made, a unique disclosure reference number will be allocated to the taxpayer.
The disclosure itself must then be made between 6 January 2023 and 9 April 2023. This notably very short period of time to quantify any additional tax due means businesses need to make urgent decisions about how to proceed and who to instruct, particularly in cases where the technology has been used over longer periods. The reason for allowing such a short period of time to finalise a disclosure is likely that HMRC are keen to commence their own tax investigations into these businesses without delay, which suggests they are confident that the information they have is accurate and reliable.
Whilst the ESS disclosure facility is going to be appropriate in many cases, for the most serious cases (i.e. where the amounts evaded are materially high; the technology has been used over many years or where there are non-ESS related matters that require disclosure), then alternative disclosure facilities which offer greater protection to the taxpayer need to be considered. These include HMRC’s Code of Practice 9 (COP9) disclosure facility which is the only tax disclosure facility which offers immunity from criminal prosecution when a full disclosure is made.
What has prompted HMRC to focus on ESS technology now?
HMRC has been aware of the existence of the technology which allows till takings to be artificially suppressed for some time, and it has been widely available to purchase for any business. However, it is not until now that in conjunction with the sharing of intelligence gathered from other J5 members, HMRC has been able to identify potential users of the technology on such a large scale.
HMRC recently announced they had arrested five individuals in the UK on suspicion of selling the technology in the UK and overseas, and now following an interrogation of computer and other electronic devices seized, HMRC say they have identified 1,000s of potential users of the technology. The latest news of arrests follows similar activity earlier in the year and HMRC has confirmed they are already gathering evidence in respect of other ESS products.
What if I choose to ignore the disclosure opportunity?
HMRC has said that anyone who has used this technology and refuses the opportunity to disclose prior to 9 April 2023 can expect to have enquiry opened into their tax affairs. The downsides of adopting a “wait and see” approach include:
- Not retaining control over the enquiry and facing uncertainty in the business that can last many months or years.
- Higher financial penalties for failing to take advantage of the ESS disclosure opportunity.
- The risk that HMRC will start focusing on other aspects of the taxpayer’s tax affairs, where it may transpire there was no tax loss.
If you would like to discuss the ESS disclosure facility or voluntary disclosures more generally, please contact Menzies Tax Disputes and Disclosures team: