HMRC’s Electronic Sales Suppression Disclosure Facility

ESS tools include any device (software or hardware) that can manipulate electronic sales records to support the submission of an inaccurate tax return. For example, the tool may record every other sale, or may incorrectly record the value of particular sales. 

HMRC doesn't issue nudge letters randomly, so if you have received one, it's because HMRC believes you have failed to accurately report your income as a result of using an ESS tool. 

HMRC receives information from a wide range of sources. They obtained new powers to tackle ESS in 2022, and since then has conducted numerous visits to businesses across the UK that were suspected of designing, supplying, or using ESS tools. It's likely that as part of those operations, details of users were obtained by HMRC. 

HMRC are also able to use their formal information powers to gather information and documents from taxpayers and third parties to check a person’s tax position, with significant penalties payable if it isn't provided in a timely manner. 

Failing to respond to a nudge letter is likely to result in HMRC commencing their own investigation. HMRC enquiries can be stressful and time-consuming, even if your tax affairs are in perfect order. Therefore, regardless of whether a disclosure is required, we always recommend responding to HMRC. The precise nature of your response should be determined by your particular situation and we'll make bespoke recommendations befitting your circumstances.

While in some instances the ESS disclosure facility will be appropriate, given the nature of ESS, in certain circumstances consideration will need to be given to making the disclosure under Code of Practice 9 utilising the Contractual Disclosure Facility (CDF).

Acceptance into and compliance with the CDF process will guarantee protection from criminal prosecution, which HMRC may consider in the most serious cases. More information regarding the CDF process can be found here.

If you do need to make a disclosure, you must first register your intention. We strongly advise speaking to an expert before registering because for some people, despite receiving a nudge letter that specifically mentions ESS, other disclosure facilities such as the CDF will be more appropriate. 

This will be dependent on the disclosure facility used, and our experts can advise on the most appropriate facility for your circumstances. As part of your disclosure, you must quantify the tax loss, self-assess the penalties due, and include any interest that has accrued due to the underpayment of tax. The disclosure process also allows you to claim any previously undeclared tax reliefs. Our experts will ensure that your disclosure contains these claims and only discloses the tax liabilities you are obligated to pay. 

By making a disclosure with our assistance, you’ll be guided through the process and retain an element of control. 

Given the amount of information now available to HMRC, anyone failing to declare the full extent of their income after receiving a nudge letter from HMRC should expect to receive significantly higher penalties and may even be subject to a criminal investigation. Making use of a disclosure facility will mitigate the risk of this happening.   

There are various factors to consider when completing a disclosure, such as the amount of information to include, the number of years or accounting periods to disclose, the level of penalty to self-assess, as well as a computation of the additional tax and interest due. 

This is a complex area that your disclosure must get right, otherwise HMRC won’t accept the disclosure and instead, may commence an investigation. There’s a lot to consider and we have years of experience in ensuring that disclosures are accepted by HMRC, without clients paying a penny more than they must.