HMRC is stepping up its campaign against users of ESS tools. Find out the latest developments, what it means for you or your clients, and the actions that need to be taken.

HMRC is following up with businesses it believes used ESS tools but have not yet made a disclosure under the ESS Disclosure Facility. The follow up letter will provide a short window to register to make a disclosure before HMRC opens its own investigation, which could potentially lead to criminal charges.

What is an ESS tool?

An ESS tool is any physical device, software, code, digital data or any other tool that can suppress “relevant electronic sales” records. An example of this is till software that only ‘records’ one in every three sales. The business will receive payment for all three sales, but when the sales records are collated, two-thirds of the sales won’t be accurately recorded. During COVID-19, HMRC became aware of several businesses using ESS tools to facilitate Coronavirus Job Retention Scheme (CJRS) fraud, and issued new powers to tackle the perceived threat of these in April 2022.

What’s happening?

The ESS disclosure facility was introduced as part of an ongoing targeted campaign by HMRC against both users and suppliers of ESS tools. This campaign notably included the arrest of five individuals suspected of designing and supplying ESS. As part of the operation, more than 100 HMRC officers visited 90 businesses across the UK that were suspected of using ESS tools to artificially lower their takings. This was part of a joint operation between HMRC and other leading tax authorities, known as The Joint Chiefs of Global Tax Enforcement or J5. Given that HMRC has now issued several campaigns targeting users of ESS tools, we can expect harsher penalties for those who failed to come forward, given the previous warnings and the fact that the Disclosure Facility has been open since 2022.

What should I do?

Any users of ESS tools to reduce their takings who have not yet come forward should urgently seek appropriate advice from a tax investigations specialist. Making a disclosure before receiving a nudge letter or before HMRC opens its own investigation will likely lead to a more favourable penalty position. While in some cases the ESS disclosure facility will be appropriate, for others where the ESS use has been over a significant period, or covering a large volume of sales, consideration should be given to a disclosure under Code of Practice 9 and the Contractual Disclosure Facility (CDF). Acceptance into the CDF process is the only way to guarantee protection from criminal prosecution in serious cases.

How we can help

• Our award-winning Tax Investigations and Dispute Resolution team can guide you through the disclosure process, ensuring that the deadlines of this disclosure facility are met.

• Our disclosure experts have a proven track record of assisting clients with ESS matters. We’re able to:

• Conduct a review of your tax affairs to identify any issues that need to be disclosed.

• Register you for the appropriate HMRC disclosure facility.

• Prepare and submit a disclosure that minimises your exposure to unnecessary tax, interest and penalties.

• If needed, negotiate a time to pay arrangement that is affordable according to your needs and personal circumstances.