HMRC One to Many letter – Electronic Sales Suppression
HMRC have advised us that they have recently commenced a new One to Many letter campaign directed at individuals and businesses suspected by HMRC of using Electronic Sales Suppression (ESS) (till fraud) to under-declare their income. The letter states that this is the recipient’s final opportunity to make a complete, accurate and honest disclosure before HMRC calculate what tax they think they owe and charge penalties.
Two letters are being used. A copy of each of the letters is provided below. There is one difference between the two letters – that is, the figures for tax and penalties used in the example in the boxed section on page 1 are higher in one letter than the other. HMRC have advised that two letter variants have been issued to test the impact different framing of the scale of possible penalty amounts has on the engagement of recipients.
The letter is directing the recipient to tell HMRC about their undeclared sales by making a disclosure within 30 days from the date of the letter using HMRC’s online ESS disclosure service on GOV.UK which has been set up for this purpose Make a disclosure about misusing your till system. If they believe they have declared all their sales, they are asked to make a nil disclosure. If they make a false or incomplete disclosure HMRC may charge penalties of up to 100% in addition to any tax that is owed and late payment interest. HMRC reserve the right to open a civil or criminal investigation should they disagree with the information that is disclosed. HMRC will also register the person for VAT, ITSA and Corporation Tax as necessary.
The letter also refers to HMRC’s guidance Electronic Sale Suppression which highlights HMRC’s approach to tax fraud and provides links to guidance on their criminal investigation policy and the Contract Disclosure Facility (CDF) and Code of Practice 9 (COP9). Where deliberate behaviour and fraud is suspected, it may be preferable to make a disclosure using the CDF rather than HMRC’s online ESS disclosure service. This is because making a disclosure to HMRC under the CDF / 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 ESS disclosure service 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.
CIOT guidance - The CIOT has produced guidance for members assisting clients who may have additional tax liabilities to disclose to HMRC – see Assisting clients with making disclosures to HMRC - guidance for CIOT members. It explains the different processes through which taxpayers can make disclosures and explains that 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. Members may find it helpful to refer to this guidance if assisting a client in responding to HMRC’s letter.
In addition, it may not just be the suppressed sales which must be disclosed to HMRC. For example, if the undisclosed monies were then used to purchase a property which is rented, generating profits which themselves were not disclosed to HMRC. Alternatively, the monies may be 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.
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.
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 Guidance on Anti-Money Laundering and in particular in AML Guidance for the Accountancy Sector (AMLGAS) and the associated Supplementary Anti Money Laundering Guidance for Tax Practitioners, which specifically covers tax offences and the privilege reporting exemption which can be relevant in these circumstances.
If there is no response to the letter within 30 days, HMRC say that they will take further action, which could include opening an investigation and inspecting the business records, issuing an assessment and/or opening a criminal investigation.