HMRC Proposes Mandatory EPOS Standards to Combat £450M Electronic Sales Suppression

The UK government has launched a consultation on mandatory software standards for the Electronic Point of Sale (EPOS) sector to combat Electronic Sales Suppression (ESS). This move targets the £450 million annual VAT loss attributed to digital record manipulation, signaling a significant regulatory shift for fintech providers and hardware manufacturers operating in the British retail market.

What was announced

The consultation focuses on preventing businesses from using illegal software or system features to underreport transactions and reduce tax liabilities. Central to the proposal is the requirement for an unalterable and complete transaction log using the OECD Standard Audit File for Tax (SAF-T) data format. This would apply to both traditional EPOS and Mobile Point of Sale (MPOS) systems, ensuring that digital sales records cannot be manipulated or hidden.

The government is considering a formal register of all EPOS and MPOS systems sold or used in the UK, backed by a certification process. Additional measures include mandatory information recording for specific details on receipts and reports, alongside the introduction of QR codes on till reports. These QR codes would facilitate "quick checks" by compliance officers, intended to take no more than 30 minutes to verify the integrity of a business's reporting.

The scale of the issue is significant; HMRC estimates that ESS alone puts over £450 million in VAT at risk annually. Furthermore, the tax gap for small businesses reached £28 billion in the 2023 to 2024 tax year, accounting for 60% of the UK's total tax gap. The consultation period is set to run for eight weeks, beginning on 23 June 2026 and concluding on 18 August 2026. Proposed penalties would target not just the businesses using suppressed systems, but also the manufacturers and suppliers who fail to protect the integrity of their software.

The companies involved

HM Revenue & Customs (HMRC) is the UK’s tax, payments, and customs authority, responsible for collecting the revenue that funds public services and providing targeted financial support to families and individuals. As a non-ministerial department, it operates with the autonomy necessary to ensure the fair administration of the tax system across the country.

HMRC has increasingly focused on digital transformation to close the tax gap, moving from traditional auditing toward active technological intervention. By proposing standards for the software layer of the retail economy, HMRC is positioning itself as a regulator of financial technology standards rather than just a collector of revenue. The department frequently collaborates with other regulatory bodies to address systemic risks in the financial ecosystem, reflecting its central position in the UK's economic infrastructure. Its ongoing efforts to modernize tax compliance for the digital age have made it a key stakeholder for fintech firms developing accounting and payment solutions for the small business sector.

What FF News has reported before

FF News has tracked HMRC’s growing involvement in the intersection of fintech and tax compliance. In early 2026, we reported on how UK small businesses invest nearly £5bn a year in tax and accounting software, a trend highlighted by Monzo’s launch of an HMRC-recognised tool powered by Sage. This move underscored the market demand for integrated compliance solutions. Additionally, HMRC’s enforcement reach was demonstrated in a major multi-agency crackdown alongside the FCA, targeting illegal crypto traders in London. These reports highlight a dual strategy: supporting businesses with better digital tools while intensifying pressure on non-compliant actors through technological oversight and multi-agency cooperation.

What this means

This announcement moves the needle by shifting the burden of tax compliance directly onto software developers and hardware vendors. For years, EPOS providers have operated with relative autonomy regarding data architecture; now, the threat of penalties for failing to protect system integrity creates a significant liability risk for the sector. It puts legacy providers under pressure to overhaul their data logging capabilities to meet SAF-T standards. The move also raises questions about the future of highly customizable POS systems. If certification becomes mandatory, the barrier to entry for new MPOS startups in the UK market will rise, favoring established players with the resources to navigate complex certification hurdles.