Recently, HMRC officials conducted surprise inspections at numerous takeaway shops and restaurants over the past month.

A few takeaway shops and restaurants are suspected of engaging in electronic sales suppression (ESS) by underreporting sales to the tax authority.

However, for businesses that have not undergone inspection, it is crucial to promptly verify and avoid unintentional use of this system.

Electronic Sales Suppression (ESS) Tools

ESS tools can take the form of software, code, or hardware, manipulating records to delete or conceal a portion of the income within the system.

Although the types vary, their common goal is to help users reduce turnover and subsequently lower tax liabilities.

Upon suspicion of ESS tool usage, HMRC issues a warning letter and requests evidence.

Failure to cooperate may result in substantial fines and more rigorous scrutiny.


Responding to the Letter

If you have received a letter from HMRC, do not attempt to ignore it.

Typically, the letter will specify a response deadline of 30 days or a certain date.

Regardless of whether your business employs ESS tools, it is essential to provide an explanation in writing.

Otherwise, HMRC might conduct audits on tax matters for a recent period or even several years ago.

Cases Exempt from Fines

  • If you received a letter but do not possess ESS tools and are correctly paying taxes, promptly provide evidence and respond to HMRC.
  • If ESS tools are discovered during an inspection, but you were unaware of their presence.
  • If you own ESS tools but can provide reasonable evidence to inform HMRC that they are no longer in use.
  • If you have been involved in ESS crimes and have faced criminal penalties.

Fines and Interest

If your business used ESS tools but voluntarily disclosed a portion of concealed turnover, HMRC charges only interest on late tax payments.

This is the lightest penalty among all, as HMRC imposes varying degrees of fines based on the circumstances.

Proactively disclosing helps avoid more severe audits and often incurs lighter fines.

However, engaging in sophisticated ESS tool operations could result in a £50,000 fine.

Therefore, it is advisable to respond promptly to HMRC in any situation to avoid more serious consequences.