Till fraud is a concern in a wide range of industries, most notably retail and hospitality and leisure, where businesses are more likely to handle large amounts of cash transactions and use point-of-sale (POS) systems. Since November 2023, HMRC has stepped up its effort to tackle suspected till fraud, following previous action taken in December 2022.
Coinciding with criminal investigations begun by HMRC’s Fraud Investigation Service (FIS), over 20 restaurants and takeaways across the UK have already been subjected to unannounced visits by HMRC. These businesses have been suspected of using electronic sales suppression (ESS) tools to intentionally hide and reduce the value of their sales and tax liabilities.
This article explores the key developments regarding till fraud, what retail, hospitality and leisure businesses need to know about HMRC’s crackdown on suspected till fraud, and the disclosure options available to businesses.
What is electronic sales suppression (ESS)?
Electronic sales suppression, or ESS, is where a business uses a tool to manipulate the true value of their transactions. Businesses would do this to seemingly reduce their turnover and profit, therefore enabling them to pay less tax and give HMRC the impression of being compliant.
The evolution of technology in relation to business transactions has moved away from traditional cash registers and shopping tills. Sophisticated POS systems present businesses with greater opportunity to manipulate transactions via ESS tools, and so the opportunity to commit till fraud is greater than ever before.
Sales suppression is typically conducted during or after a point of sale so that electronic sales records appear to be accurate and complete. Till fraud via ESS tools can be prevalent in industries like retail, hospitality and leisure where the use of POS systems and transactions occur in large volumes.
HMRC’s ESS disclosure facility
In December 2022, HMRC announced their ESS disclosure facility to combat till fraud where businesses have utilised ESS tools to supress their sales.
Uptake of this facility was slower than expected, with HMRC expecting businesses would use this opportunity to disclose their misuse of ESS technology and agree to settle on more favourable terms. Businesses were given between January 2023 and April 2023 to make voluntary disclosures.
Despite the window for disclosures having now closed, taxpayers should still make voluntary disclosures if they have suppressed sales. This is encouraged by HMRC as penalties can be mitigated where disclosures are voluntary and ‘unprompted’, but in more serious cases it can prevent a criminal prosecution (see below).
Rising concerns around ESS tools
The use of ESS tools has become a rising concern for HMRC, since information has been shared by offshore tax authorities in the J5, which includes the US and Australia. As a result of this intelligence, HMRC has been better able to pinpoint users of the technology.
ESS is tax fraud and any business that produces, supplies, or promotes the use of ESS systems can face considerable financial penalties, and in the absence of disclosure, individuals can face potential criminal convictions. Five individuals have been arrested since December 2022 for the misuse of ESS tools, so the severity of using ESS tools should not be underestimated by any business owner or manager.
While HMRC’s initial focus of the usage of ESS tools has been on restaurants and takeaways, their attention is expected to shift to include other industries, such as retail and wholesale.
Disclosure through HMRC’s Code of Practice 9 (COP9)
HMRC’s COP9 is the only disclosure facility that guarantees immunity from criminal prosecution provided that a full disclosure is made. COP9 could be an avenue for individuals and businesses to consider where their cases of till fraud and the use of ESS tools are severe, or where there are other complexities to consider.
HMRC estimates thousands of businesses to have used ESS systems. With increased scrutiny on till fraud across several industries, businesses should seek professional guidance on their tax disclosures to mitigate potential financial penalties they may incur.
If you require further information regarding ESS technology and assistance with disclosures, please contact Menzies’ Tax Disputes and Disclosures team.
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