On 20 July 2021 the UK issued draft legislation and an explanatory note on new powers to deal with tax evasion through the use of electronic sales suppression (ESS). This is aimed at businesses that undertake ESS to hide or reduce the value of individual transactions, thereby reducing the recorded turnover of the business while providing an apparently compliant audit trail.
The legislation will make these businesses liable for penalties and a requirement to remove the ESS software from their systems.
The measures would be included in the Finance Bill 2021/22 and would take effect from the date of Royal Assent to the legislation.
Some businesses make use of software that is created to assist tax evasion by deliberately excluding certain products or types of transaction from the tax audit trail. Other businesses deliberately misuse their electronic point of sale (EPOS) technology to reduce the sales figure, for example by using the training mode of a till to key in sales that are then excluded from the records.
The new legislative powers would strengthen the ability of HMRC to deal with the problem by making it a criminal offence to possess, supply and promote ESS software or hardware.
There would also be new information powers that would grant to HMRC the ability to obtain details of suppliers of ESS software and hardware. They would be empowered to obtain details of the developers’ source code and the structure of data in the EPOS system.
These measures would serve to deter businesses involved in ESS, reduce the ability of businesses to use ESS and reduce the current use of ESS.
The draft legislation is based on information obtained from a call for evidence on 19 December 2018. A summary of responses to the call for evidence was published on 25 June 2020.