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HMRC internal manual

Enquiry Manual

From
HM Revenue & Customs
Updated
, see all updates

Working the enquiry: reviewing earlier years: outstanding returns: determination of tax:

To establish the amount for each determination, you must check the taxpayer’s records for information that will enable you to reasonably estimate either

  • the tax liability, or,
  • the level of net taxable income, for example, capital gains, investment income, business profits and so on.

Based on this information, there are three general methods of calculating the correct determination figure. All three of these methods are underpinned by the guidance at DMBM518040 and DMBM518025, which you must follow in all cases. Use the most appropriate method depending on what information we hold.

All three calculation methods are only a guide. You must adjust the percentages and credit levels to take into account any additional information you have about the taxpayer or their trade or their source of income and so on. And take account of any changes in the general economy, for example where there is an economic downturn that may affect the business. You will need to calculate the totals of income tax, capital gains tax, and or tax deducted at source.

Method 1

For this method, the amount to be determined is based on the previous years, or last known, liability. These figures may be from a return or from the last determination issued. You may need to ask DMB to issue a determination that is either equal to or greater than the previous year’s liability or last known liability. For example, for the first year to be determined, this could be the last known liability plus 20% and for the second year the last known liability plus 50%. You must consider each case carefully before adding increments, following the guidance at DMBM518040.

Method 2

Use this method if you don’t know the previous year’s liability or there is no last known liability.

Where the information you hold is limited, consider whether you can use information powers to obtain more accurate detail, see CH23000+.

You can use this method in a wide range of circumstance, for example where

  • you don’t have any figures because of a failure to notify or because the taxpayer is new to SA, or
  • you hold some information about the taxpayer’s income and/or other specific monetary amounts, and by applying this method you can arrive at the figure to be determined. (For example, you may have figures from VAT compliance checks, amounts shown in CT accounts for directors, amounts held in bank accounts, income from the sales of assets, or third party information.)

There are two stages involved in calculating the figure to be determined

  • Establish the net taxable income or profit either based on the information you hold(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

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  • Once you have established the taxable income figure you will need to establish the tax liability to be determined. You must do this by using

    • either the relevant Full Tax Calculator in SEES, (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
    • (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

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Method 3

This method can be used when there is

  • either a tax deducted at source under PAYE or via CIS
  • a credit balance on the record.

In these circumstances, follow the specific guidance at DMBM518040. You may need to use this together with Method 2 above in order to establish the correct figure to be determined.