HMRC’s ESS letter: What happens if you don’t disclose?

If you’ve received an ESS letter from HM Revenue & Customs (HMRC) about possible undeclared sales linked to “electronic sales suppression” (ESS), the clock has already started ticking.

HMRC’s warning is clear: you have one final opportunity to make a full, accurate disclosure before HMRC takes matters into its own hands.

But what happens if you choose to ignore the ESS letter?

As specialists in tax investigations, we can say with confidence that silence is rarely a wise strategy when HMRC is involved.

Here’s what you need to know about the consequences of inaction – and what a full HMRC investigation may entail.

The ESS letter’s 30-day window and what happens when it closes

The ESS letter gives recipients 30 days to respond by making either a full disclosure of undeclared sales or a “nil disclosure” if they believe everything is in order.

That may sound straightforward, but it can be complex and needs to be handled carefully.

Once the 30-day period lapses without a disclosure, HMRC moves into the investigation and enforcement phase.

HMRC has already flagged your business as potentially involved in tax evasion via ESS – and if you don’t engage, it will proceed on the basis that something is wrong.

At this point, you can expect one or more of the following:

• A full civil or criminal investigation, depending on the scale and nature of the suspected evasion.
• A tax assessment, estimating the tax owed based on the data HMRC already holds.
• Interest and penalties, which can reach up to 100 per cent of the underpaid tax.
• Registration for other taxes, such as VAT, if you should be registered but aren’t.

Of course, avoiding these is the best strategy, but if you fail to do so, you may need help from a specialist tax investigations expert.

What an HMRC investigation looks like

If HMRC opens a formal investigation, it can follow two main routes:

1. Civil investigation

This will include a detailed review of the:

• Financial Records: bank statements, invoices, receipts, and business accounts.
• Accounting Records: Breakdowns of income, expenses, accounts and tax returns.
• Who was responsible for managing the books and records and key decision making.

This could include an investigation under Code of Practice 9 (COP9). COP9 is used where HMRC suspects serious fraud but offers the opportunity to admit to deliberate behaviour via the Contractual Disclosure Facility (CDF). In return, HMRC agrees not to pursue a criminal prosecution – provided the taxpayer fully cooperates and discloses all wrongdoing. The process involves:

• Making an admission of deliberate conduct
• Preparing a detailed report explaining the tax loss
• Ongoing cooperation with HMRC officers

2. Criminal investigation

In more serious or high-profile cases, HMRC may bypass the civil route altogether and pursue a criminal investigation. This typically happens where:

• There has been persistent or high-value evasion
• There is evidence of forgery or concealment
• There is a public interest in prosecution

A criminal investigation may involve search warrants, dawn raids, seizure of records, and ultimately, prosecution. If convicted, penalties may include:

• Fines
• Confiscation of assets
• A criminal record
• A custodial sentence

The risk of inaction when it comes to an ESS letter

Many people bury their heads in the sand, hoping HMRC will lose interest.

However, if you do not respond, HMRC will press ahead with its own assumptions – and those assumptions are rarely in your favour.

You’ll lose any opportunity to:

• Negotiate lower penalties
• Demonstrate cooperation
• Make representations about behaviour (e.g. carelessness vs. deliberate)
• Avoid criminal proceedings

By ignoring the ESS letter, you are effectively waiving your chance to influence the outcome.

You must act quickly.

If your 30-day window has passed, you can still come forward voluntarily. Our tax investigations experts can help you:

• Assess the level of risk and exposure
• Choose the right disclosure route (voluntary disclosure vs. CDF)
• Prepare an accurate and complete report
• Liaise with HMRC on your behalf to manage the fallout

The key is to take control of the situation before HMRC does it for you.

ESS letters: Our thoughts

HMRC’s ESS letters are not speculative – they are based on real data, drawn from software providers, payment systems, and third-party sources.

If you’ve received one, it’s because HMRC already suspects something is wrong – and doing nothing is only likely to confirm it.

If there have been errors, deliberate or otherwise, by making a disclosure you can have more control over the process and present the best case, rather than reacting to HMRC actions.

Whether you have genuinely made mistakes, or have concerns about what HMRC knows, professional advice is essential.

A good tax investigations specialist can help you minimise penalties, avoid prosecution, and put things right.

If you need guidance dealing with an ESS letter, please speak to our experts.

You can get in touch with our friendly and experienced team on: 0203 675 8122 or email jeremy.johnson@intaxltd.com.

inTAX is a specialist tax disputes firm. We deal with disclosures, investigations, and tax enquiries of all descriptions, including COP9, fraud investigations, VAT fraud, tax avoidance, let property disclosures and tribunal appeals. However, we don’t just deal with the serious end of tax investigations; we are also happy to handle smaller enquiries, disputes and problems that can be equally as worrying for our clients