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HMRC internal manual

Securities Guidance

HM Revenue & Customs
, see all updates

Calculating the amount of security: the quantum calculation: estimating future revenue risk using taxable turnover: VAT

If the only information available to you is the person’s VAT 1 taxable turnover figure you must make an allowance for input tax. Your decision must be reasonable. If you are unsure how much input tax to allow you should refer to the Tax Performance Ratio (TPR) for the person’s trade class. This ratio is calculated using the formula

(Total output tax - Total input tax)/ total input tax)

The information is available via Compliance Risk Information Profile (CRIP). Input tax allowance may be roughly estimated by applying the following formula

Input tax = 20% VAT 1 Turnover
TPR + 1  

Always round up the figure.

If the above information is not available to you, or if you want to compare, you should use net VAT due on returns rendered by businesses of a similar size, location, trade class and a similar customer base to the person’s current business.

If the VAT 1 taxable turnover is the only information you have consider issuing a warning letter to prompt the person to provide more information on which to base your calculation of the amount of security.

It may be possible to obtain more accurate information on which to base your estimate from visiting officer’s reports in the person’s file, or by asking the person.

The person may have estimated average liability based on sales/income required to run the business. Using this information as the basis for your estimate has the advantage of being difficult for the person to dispute.

It is essential that you keep a written record of how you came to your decision on the amount of security. This will be invaluable if the person appeals to tribunal or requests a review, see SG70200.