HMRC has launched a three-month consultation looking at electronic sales suppression (ESS), whereby businesses or individuals use technology to artificially reduce their reported sales and corresponding tax liabilities
The department says its call for evidence is designed to help HMRC understand more about how modern technology is being exploited for the purposes of ESS; what the potential scale of tax evasion is in this area; and how the electronic point of sale (EPOS) industry can help prevent this non-compliant activity.
ESS is where businesses manipulate electronic records of sales data, either during or after the point of sale, in order to hide or reduce the value of individual transactions. This is done to reduce the recorded turnover of the business, and corresponding tax liabilities, whilst providing what appears to be a credible and compliant audit trail.
This manipulation broadly takes one of two forms: businesses can use illegitimate software and technology that has been created specifically for the purposes of facilitating tax evasion; or businesses can deliberately misuse legitimate EPOS functions to suppress their sales (for example, a business could misuse a till training mode, which automatically allows for sales to be excluded from their accounts). The consultation offers case studies outlining how this is done.
HMRC says that in recent years, it has become apparent that some software developers are developing EPOS systems that deliberately suppress sales in order to facilitate tax evasion. While HMRC’s operational experience suggests that ESS is a growing area of tax evasion, precise estimates of the scale of evasion are difficult to calculate given the nature of this concealed activity.
The call for evidence asks for input about the attitudes towards the use and promotion of ESS by EPOS providers; the ways non-compliant businesses use EPOS systems to suppress sales in the UK; the motivations behind the use of ESS as a means of suppressing sales; the availability of, and methods of access to, ESS software specifically designed for the purposes of evading tax; and the role the EPOS software industry can play in supporting HMRC to tackle this evasion.
The consultation says that one potential option for tackling ESS is to explore technological measures. This could include mandatory software or hardware for businesses which conforms to technical requirements that reduce the opportunity for ESS; or an encrypted, unalterable and complete transaction log containing details of every transaction and adjustment.
The consultation closes on 20 March 2019.
Electronic sales suppression call for evidence is here
