Owners of retailers, restaurants and bars have been given until 9 April as their last chance to admit to HMRC that they hid sales and evaded tax through illegal software, international law firm Pinsent Masons states.

HMRC is cracking down on the use of ‘Electronic Sales Suppression’ (ESS) software that some high street businesses have been using on their tills to evade tax. ESS software allows a business to hide or reduce the value of transactions on its electronic sales records either at, or after, the point of sale.

In some cases, the software automatically redirects a percentage of the income from sales into a hidden bank account, fraudulently reducing the income the business reports to HMRC.

HMRC classes the use of the software as tax fraud, meaning those who do not come forward face criminal investigation and penalties including prison sentences.

Businesses that contact HMRC admitting to using the illegal software by the April 9 deadline will only face a maximum penalty of 100% of the tax they owe versus a possible custodial sentence.

HMRC is likely to have obtained a list of businesses that have used ESS systems after five individuals in the UK were arrested in May 2022 for allegedly designing and selling ESS systems worldwide. This group is suspected of enabling thousands of businesses to evade tax. In December 2022, more than 90 UK companies suspected of using ESS systems were raided by HMRC officers.

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HMRC’s crackdown comes at a time when it is under increasing pressure to collect unpaid tax to fill the deepening ‘black hole’ in government finances. Recent estimates put the UK’s ‘tax gap’ – the gap between the amount of tax that should be received and the taxation actually received – for the hidden economy at £3.2bn ($3.8bn) for 2020/21.

Pinsent Masons has said that any business that has ever used ESS systems should take professional advice before contacting HMRC.

Pinsent Masons tax specialist, Sophie Warren, commented: “Any business that has ever hidden sales from HMRC with this software should come forward and admit to it – the penalties if HMRC finds out later will be far worse.

“It’s likely that HMRC has a long list of businesses that have bought the software from the providers they arrested last year. It is likely that as soon as 9 April passes, HMRC will be targeting all those customers that didn’t come forward voluntarily.

“Anyone considering making a disclosure to HMRC should take professional advice to ensure that they get the best outcome possible. Business that contact HMRC unprepared will not be best placed to limit the penalty imposed upon them for undertaking ESS.”