HMRC One to Many Letter – Electronic Sales Suppression
HMRC have advised the CIOT that they have recently commenced a One to Many (OTM) letter campaign connected to the use of till systems that hide or reduce the value of individual transactions on a business’s electronic sale records. Such systems reduce the recorded turnover of the business and corresponding tax liabilities, whilst providing what appears to be a credible and compliant audit trail. This is known as Electronic Sales Suppression (ESS).
There is a collection page of guidance about ESS on GOV.UK. This says that ESS is tax fraud.
The letter campaign is targeting businesses which might not have paid the correct amount of Income Tax, Corporation Tax and/or VAT due to misuse of their till systems. The letter is providing an opportunity for businesses to get their tax affairs in order, by coming forward voluntarily and disclosing undeclared sales. The letter explains the different penalties that can be charged and also explains what further action could be taken by HMRC if the business deliberately tries to avoid paying any tax it might owe.
If people do not come forward, HMRC will take further action which could mean a full audit of the business, opening a civil or criminal investigation and/or issuing an assessment of the tax they think is owed, including interest and penalties.
The letters started to be issued from 3 June 2024. A copy of the letter can be found below.
It should also be noted that:
- HMRC’s letters are suggesting that if a person or business has undeclared sales as a result of misusing their till system they must make a disclosure using the online process on GOV.UK which has been set up for this purpose. However, depending on the taxpayer’s circumstances, other approaches may be better, for example the Contractual Disclosure Facility (CDF) where deliberate behaviour or fraud is suspected.
- This is because making a disclosure to HMRC under the CDF/Code of Practice 9 (COP9) route can give the taxpayer protection from criminal prosecution for tax offences so long as they make a complete, open and honest disclosure of all deliberate behaviour and HMRC accepts them into COP9. That protection is not formally available via any other disclosure method, including the online method suggested in the letter.
- HMRC’s Agent Update 96 which was issued on 19 May 2022 advised agents to direct their clients to use the CDF to make disclosures if they have been involved in any tax fraud or deliberate activity relating to ESS.
- It may not just be the suppressed sales which must be disclosed to HMRC. For example, the extraction of the monies from the business may be taxable, for example the undisclosed monies may have been used to purchase a property which is rented, generating profits which themselves were not disclosed to HMRC. Alternatively, the monies may have been invested in the UK or elsewhere in an investment portfolio and the income and gains arising in the portfolio have not been disclosed correctly to HMRC.
- Other criminal offences may be applicable too, such as those connected to the proceeds of crime.
- The CIOT has produced guidance for members about the different processes through which taxpayers can make disclosures to HMRC. Members should choose the disclosure service which is most appropriate for their client’s circumstances given all the issues to be corrected and the reason(s) why the inaccuracy(ies) occurred.
- Guiding clients through the process of making disclosures to HMRC of tax fraud and deliberate behaviour is a specialist area, as is handling any enquiries or investigations opened by HMRC into cases of suspected tax fraud.
- A CIOT member must comply with the fundamental principle of professional competence and due care as set out in Professional Conduct in Relation to Taxation (PCRT). This means that they should not undertake professional work which they are not competent to perform unless they obtain appropriate assistance from a suitably qualified specialist. Advice from another adviser specialising in tax disputes may therefore be needed if the member does not have the necessary expertise to handle a disclosure or investigation themselves. Other PCRT helpsheets may be relevant too, such as Helpsheet C: Dealing with Errors.
- If suspicious activity is identified or suspected, it may be necessary to make a Suspicious Activity Report (SAR) to the National Crime Agency under the Money Laundering and Terrorist Financing (MLTF) regime. Guidance about Anti-Money Laundering (AML) to help CIOT members understand how to meet their legal responsibilities, including the making of SARs, is provided elsewhere on the CIOT website here and in particular in AML Guidance for the Accountancy Sector (AMLGAS) here and the associated Supplementary Anti Money Laundering Guidance for Tax Practitioners here, which specifically covers tax offences and the privilege reporting exemption which can be relevant in these circumstances.