Powers to tackle electronic sales suppression
Updated 27 October 2021
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Who is likely to be affected
Those deliberately non-compliant businesses undertaking electronic sales suppression (ESS). Such businesses will be liable for penalties and will have to remove the ESS software from their electronic point of sale (EPOS) systems.
General description of the measure
The measure tackles the form of tax evasion known as ESS. ESS is where a business deliberately manipulates its electronic sales records in order to hide or reduce the value of individual transactions. This is undertaken to reduce the recorded turnover of the business and the corresponding tax liabilities, while providing what appears to be a credible and compliant audit trail.
Manipulation occurs either at, or after, the point of sale and broadly takes one of two forms:
- businesses can exploit software and technology that have been created specifically for the purposes of tax evasion (for instance, software that deliberately excludes certain products or types of transactions from tax audit trail reports)
- businesses can deliberately misuse legitimate EPOS technology to suppress sales, (for instance, by using a training mode in a till to exclude genuine keyed-in sales)
New ESS-specific legislative powers are being introduced to strengthen the approach to tackling the possession, making, supplying and promotion of ESS software and hardware.
New legislation is also being introduced to provide HMRC with ESS-specific information powers. These powers will allow HMRC to obtain details of those involved in the supply of ESS software and hardware. They will also allow HMRC to obtain details of ESS software developers’ source code and the structure of data within an EPOS system.
Policy objective
The measure will act as a deterrent to businesses undertaking ESS, it will reduce the opportunities for ESS, and it will decrease the existing use of ESS. This will support fair competition by helping to make sure that businesses meet their true tax liabilities.
Background to the measure
On 29 October 2018 the government announced at Budget that a call for evidence would be published on ESS.
Between 19 December 2018 to 20 March 2019, the government held a call for evidence to learn more about the nature and scale of ESS.
The government published a summary of responses to the call for evidence on 25 June 2020.
The government announced new powers to tackle ESS at Spring Budget 2021.
The government decided that there would not be merit in publishing a policy consultation document on ESS. ESS is not a controversial topic and the proposed measures are neither introducing a new tax nor increasing the level of an existing tax. The measure is aimed at making sure non-compliant businesses become compliant and meet their true tax liabilities.
Detailed proposal
Operative date
The measure will have effect on and after the date of Royal Assent to Finance Bill 2021-22.
Current law
The main pieces of existing legislation relevant to this form of tax evasion are section 114 of the Finance Act 2008; section 45 of the Criminal Finances Act 2017; sections 6 and 7 of the Fraud Act 2006; section 44 of the Serious Crime Act 2007 and schedule 36 to the Finance Act 2008.
Proposed revisions
New legislation is being introduced to make offences of the possession, making, supplying and promotion of ESS software or hardware.
There will also be new ESS-specific information powers. These powers will allow HMRC to obtain details of those involved in the supply of ESS software and hardware. They will also allow HMRC to obtain details of ESS software developers’ source code and the structure of data within an EPOS system.
Summary of impacts
Exchequer impact (£million)
| 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 |
|---|---|---|---|---|---|
| negligible | +5 | +20 | +20 | +20 | +20 |
These figures are set out in Table 2.1 of Budget 2021 and have been certified by the Office for Budget Responsibility.
More details can be found in the policy costings document published alongside Budget 2021.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
The terms used in this section are defined in line with the Office for Budget Responsibility’s indirect effects process. This will apply where, for example, a measure affects inflation or growth. You can request further details regarding this measure at the email address listed below.
Impact on individuals, households and families
This measure has no impact on individuals as it only affects non-compliant businesses engaged in ESS. There is expected to be no impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that there will be impacts on groups sharing protected characteristics.
Impact on business including civil society organisations
This measure will affect non-compliant businesses engaged in ESS.
For a small number of compliant businesses that are unsure whether their EPOS systems are compliant, there will be a negligible one-off cost to familiarise themselves with the change, which will include checking that they do not have any software or technology that supports ESS and removing it if they do.
There are not expected to be any continuing costs for compliant businesses.
Customer experience for compliant businesses is expected to remain broadly the same as there is no change to how they interact with HMRC.
There is expected to be no impact on civil society organisations.
Operational impact (£million) (HMRC or other)
ESS investigations will be covered by existing operational resource.
Other impacts
Other impacts have been considered and none has been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, contact the Individuals and Small Business Compliance team in HMRC by email: compliance.policyandstrategy@hmrc.gov.uk.