15th May 2023
HMRC will start to send nudge letters to taxpayers in relation to electronic sales suppression (ESS). HMRC launched their latest campaign in April 2023 to tackle the use of till systems that hide or reduce the value of transactions on a business’ electronic sale records. The campaign will run throughout the coming year and possibly beyond.
It is believed that HMRC holds concrete information and this data will be used to issue one of two nudge letters. Both letters state HMRC holds information which suggests the taxpayer has misused their till system to reduce their tax bill. Taxpayers will then have 30 days from the date of the letter to respond to HMRC.
HMRC has sent a clear message: they will take further action, such as making an assessment or opening an enquiry, if the taxpayer does not make a full disclosure to HMRC.
Letters will be sent to taxpayers identified by HMRC, encouraging them to review their tax affairs and, should they need to bring their tax affairs up to date, to make a disclosure. Depending on the taxpayer’s circumstances, the online disclosure may not be the most suitable method of disclosure to HMRC. Due to the nature of ESS, HMRC is likely to allege that the taxpayer’s deliberate behaviour led to the loss of tax and fraud could be suspected. Taxpayers should consider the Contractual Disclosure Facility (CDF) under Code of Practice 9 (COP9) to provide them with protection from criminal prosecution, for those issues disclosed.
Serious consideration should be given to this matter, as not responding to a nudge letter or making an incomplete disclosure, could set the ball rolling towards criminal prosecution. On receipt of an ESS nudge letter, care should be taken, and taxpayers should seek competent professional advice – not every advisor will have the expertise and may inadvertently make a misstep.
Disclosures and penalties
If a taxpayer finds a mistake in their filings to HMRC, disclosing the error or omission before HMRC sends a letter (such as those detailed above), or opens an enquiry, will lead to the most favourable outcome. Following receipt of a nudge letter, a disclosure to HMRC will be treated as ‘prompted’ for penalty purposes. Prompted penalty rates are higher than those that apply to unprompted penalties. For example, the maximum prompted penalty for an onshore, deliberate and concealed omission is 100%.
Voluntary disclosures to HMRC benefit from the lowest possible penalty range for the type of error. Broadly, the length of time interacting with HMRC will also be significantly shorter compared to a full investigation.
A professional tax advisor can guide a taxpayer through the disclosure process, advise on the appropriate next steps and, where applicable, the penalty mitigation available. We recommend taxpayers immediately seek professional advice following receipt of an HMRC nudge letter, statutory enquiry or where a taxpayer has found a mistake in their filings to HMRC.
Our Tax Disputes & Resolutions team are experts in dealing with all types of HMRC disclosures including CDF. We obtain favourable results for our clients, allowing them to move on without further intrusion from HMRC.