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VAT evasion: telling tills


One of the most common methods of VAT evasion is to under record sales on which VAT is due. This is referred to as suppression by HMRC.

HMRC officers are trained to make ‘best judgement’ assessments for businesses where they believe that suppression has taken place. These are often challenged and can cost businesses extensive time and money in just arguing the case with HMRC, let alone the assessment itself which is often significant.

Such activities were easier when businesses sold goods and services for cash. The huge rise in card or contactless payments has made such suppression much more difficult to disguise (at this point we would make it clear that this should not cast aspersions on ‘cash only’ businesses.)

However, the introduction of sophisticated tills to record sales, the relevant VAT treatment of those sales, and the software that determines how those sales are recorded has given rise to new opportunities for evasion.

In late November 2022 HMRC issued a fact sheet about the use of electronic sales suppression (ESS) software and how businesses could disclose to HMRC the fact that they were ‘in possession’ of an “ESS tool”, or made, supplied, or promoted an ESS tool.

This should have alerted those who were seen to be making supplies of such tools, but apparently not, for in December 2022 HMRC, along with other tax authorities in the USA and Australia, made arrests in relation to the development and sale of ESS software.

In addition, more than 100 HMRC officers visited 90 businesses across England, Scotland and Wales in a week of coordinated action.

HMRC has announced that businesses that use such software to suppress sales figures (and thus reduce the amount of VAT due), have from 6 January to 9 April 2023 to disclose the fact. For those businesses that do not make a disclosure within this time frame, “HMRC will open an enquiry into your tax affairs” (a direct tax phrase for what is primarily a VAT issue).

Therefore, it seems safe to assume that HMRC has a customer list of the software sellers so know who to investigate should they not disclose their use of the software.

HMRC go on to say that the business does not have to use the ESS, simple possession of ESS software is enough to warrant investigation.

There is no given name for the ESS software, presumably as it’s not marketed for its name but what it does, and for HMRC to mention branded names may restrict their scope of investigation.

If you have, or are, using ESS software you need to ensure that this fact is disclosed to HMRC before 9 April 2023; otherwise HMRC could look to impose far higher penalties than if disclosure is made accurately and promptly.

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