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HMRC internal manual

Securities Guidance

From
HM Revenue & Customs
Updated
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Calculating the amount of security: the quantum calculation - VAT/Environmental taxes: the formula

The quantum is a formula we use to calculate the amount of security we require. It’s important that you use the formula set out in this chapter because tribunals have found it acceptable.

There are three sums to calculate

  1. The estimated future revenue at risk should a person fail to make and/or pay a return.
  2. The further estimated future revenue at risk built up while HMRC winds up a person’s business.
  3. The actual debt a person has at the time we require security.

In VAT or environmental taxes, where a person makes quarterly returns, the estimated revenue at risk in step 1 above will be 3 months’ tax. Where they make monthly returns the estimated revenue at risk will be 1 month’s tax.

HMRC estimate that the time taken to wind up a business (step 2) is 3 months.

The quantum calculation formula is as follows

  1. The amount of tax shown by a tax return
* where a person makes quarterly returns a sum equal to the amount of VAT paid in 3 months
* where a person makes monthly returns a sum equal to the amount of VAT paid in 1 month.
  1. The amount of tax at risk in the 3 months it would take to wind up a business is added to 1 above.
  2. The person’s debt at the time security is required is added to 1 and 2 above, see SG34000.

The total of the figures in the three steps above is the amount of security we require.

You may have return and payment information on file that will allow you to accurately calculate the amount of security required, see SG32200.

Where you do not have returns on file you may need to estimate the figures using taxable turnover, see SG32300.

Whichever method you use to calculate the amount of security required you should arrive at a figure that is reasonable and proportionate to the revenue at risk.