HMRC One to Many letters - Electronic Sales Suppression
HMRC have advised the CIOT about 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).
The 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 intention is to provide an opportunity for businesses to get their tax affairs in order, by coming forward voluntarily and disclosing undeclared sales. If people do not come forward, HMRC may issue an assessment and/or open an investigation and harsher penalties will apply.
The letters started to be issued from 11 April 2023 and will continue to be rolled out during May. It is envisaged that this campaign will be continuous for at least the coming year. The two letters HMRC will be issuing for the campaign can be found below. Both designs will be used initially so HMRC can determine the best approach going forward.
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 individual circumstances of the taxpayer, other approaches may be better, for example the Contractual Disclosure Facility (CDF) where deliberate behaviour and 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, 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 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.