HMRC has recently reported visiting businesses across the country and making three arrests as part of a day of action against Electronic Sales Suppression (ESS). The action came following the introduction of new penalties in Finance Act 2022, intended to support HMRC in tackling the fraud.

ESS occurs when a business either acquires, or gains access to, software that will assist it to under-report its sales, while still providing an apparently reliable audit trail. It can also apply where a business misuses their legitimate software to reduce apparent takings – for example recording sales while the software is in ‘training mode’ so that any sales recorded don’t reach the business’s records. Whichever approach, the result is an understatement of turnover in the business records, and an evasion of tax.

The new powers were introduced following a consultation that closed in March 2019. Under the powers, businesses engaged in supplying or promoting ESS systems can be liable to penalties of up to £50,000. Those found in possession of an ESS tool can be fined up to £1,000. While this second fine might seem low, it is likely that anyone who has used such a tool could expect further penalties for fraudulent and inaccurate returns and loss of tax.

In a press release on 18 May 2022, HMRC reported that 30 businesses were visited earlier this year following the introduction of the new powers, including shops, takeaways and restaurants across nine counties to tackle ESS. Following the action, two men aged 43 and 58 and a woman aged 56 were arrested in Nottinghamshire as part of a criminal investigation into the alleged supply of ESS software.

The three were arrested on suspicion of fraud offences and cheating the revenue and were then released pending further investigation.

Anyone who has used ESS should contact HMRC using their voluntary disclosure facility to regularise their affairs. Making a disclosure in advance of a visit by HMRC could help to reduce the financial penalties charged to anyone involved in this activity.