Possession of Sales Suppression Tools Can Trigger HMRC Penalties

Xero Queen
6 minutes ago
3 min read

HMRC has issued a new compliance factsheet highlighting the penalties that can apply where a business is found to be in possession of an electronic sales suppression (ESS) tool, even where there is no evidence that the tool has ever been used to suppress sales.

The guidance serves as an important reminder that businesses cannot assume they are compliant simply because suppression functionality has not been activated. In certain circumstances, the mere possession of an ESS tool may be sufficient to attract significant penalties.

What Is an Electronic Sales Suppression Tool?

Electronic sales suppression involves the use of software, hardware or other tools that are capable of concealing, reducing or altering sales transactions recorded by an electronic till or point-of-sale (POS) system.

Such tools are commonly associated with the deliberate understatement of taxable turnover. However, HMRC's latest guidance makes clear that the legislation extends beyond actual use of these tools.

Importantly, HMRC takes a broad view of what constitutes "possession". It is not limited to legal ownership of an ESS tool. A business may also be regarded as being in possession where it has access to the functionality or has attempted to access it.

Penalties for Possession

Where HMRC believes a business possesses an ESS tool, it will generally require the business to remove the functionality, cease using it and provide evidence that the issue has been addressed.

Failure to comply can result in:

An initial penalty of up to £1,000.
Further daily penalties of up to £75 per day until HMRC is satisfied that the ESS tool is no longer available.

Where a business has incurred an ESS-related penalty within the previous five years, HMRC states that the maximum £1,000 penalty will ordinarily be charged immediately, with daily penalties typically imposed at the maximum rate of £75 per day.

These penalties are separate from any liabilities that may arise where suppressed sales have led to an understatement of tax. In such cases, additional assessments, penalties and interest may also apply.

Why the Guidance Matters

The most significant aspect of HMRC's latest guidance is that it is not necessary for HMRC to demonstrate that sales have actually been hidden before a penalty can be imposed.

This significantly broadens the compliance risk for businesses operating electronic tills and POS systems. Some systems may include suppression capabilities as part of their software architecture, regardless of whether those features have ever been activated or used.

As a result, businesses should not assume that a lack of wrongdoing removes the risk of sanctions. The existence of accessible suppression functionality may itself be sufficient to attract HMRC scrutiny.

Recommended Action for Businesses

Businesses that receive an enquiry from HMRC concerning their till software should take immediate steps to understand the functionality available within their systems.

This should include:

Reviewing electronic till and POS software configurations.
Establishing whether any ESS functionality exists.
Removing, disabling or restricting access to any suppression features.
Retaining evidence that the functionality has been removed or rendered inaccessible.

Documentary evidence may be particularly important in demonstrating compliance and preventing daily penalties from continuing to accrue.

Conclusion

HMRC's latest factsheet reinforces its increasingly robust approach to electronic sales suppression. The key message for businesses is clear: penalties can arise not only from the use of sales suppression tools, but also from their possession.

Businesses relying on electronic till or POS systems should therefore ensure they fully understand the capabilities of their software and take prompt corrective action where suppression functionality is identified. A proactive review now could help avoid substantial penalties and unnecessary compliance difficulties in the future.