23 June was “Tax Update 2026” day, when HMRC published its latest plans for making its tax collection systems more efficient. As with the general trend these days, that involved a number of proposals for passing responsibility from HMRC onto taxpayers. There is nothing wrong in principle with asking taxpayers to reveal what they have been doing, on pain of penalties if they fail to do so. Unfortunately, in practice, this leads to huge administrative burdens passing to compliant taxpayers when there is no need for such burdens, simply because they are already compliant. Non-compliant taxpayers (or non-payers), on the other hand, can blithely ignore all the red tape, having decided to take the risk of operating outside the system (a risk that reduces every time HMRC passes more responsibility for administration and checking onto the taxpayer).
Be that as it may, one of HMRC’s consultations issued on “Tax Update 2026” day caught our eye in particular. It concerns electronic sales suppression (ESS) software. Essentially, a business can buy an accounting system that will apparently record all transactions but produce results that understate the true position. HMRC is very much aware of ESS software and its dangers but more needs to be done, apparently, to stamp out its use. The consultation paper includes an interesting timeline.
In 2005 the OECD produced its first standard audit file, use of which is intended to make ESS harder (if not impossible). Version 2 was produced in 2010 and many countries now use it to combat ESS.
In 2013 the OECD published a detailed report called Electronic Sales Suppression: A Threat to Tax Revenues. This report advised tax authorities to:
- check if their legal powers were strong enough to examine and investigate point of sale systems (of which ESS software is one type);
- make sure their staff had the skills and tools needed to check and investigate these till systems; and
- think about making it a crime to supply, own, or use software that hides sales.
HMRC considered the OECD report until 2018, when the UK government issued a call for evidence (asking those outside government for information about ESS), which led to a summary of responses in 2020.
Finance Act 2022 made it a criminal offence to own, make, sell or promote ESS tools and increased HMRC’s powers to seek information about them.
HMRC is now (in 2026, obviously) proposing to implement anti-ESS measures based on the OECD standard audit file method.
No criticism of HMRC is intended; it is clearly trying to do its best; but a look at that timeline prompts the inevitable conclusion that the organisation is sclerotic. It is more than 20 years since the standard audit file was made available; think of the revenue losses suffered in the meantime and for what they might have been better used.
