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HMRC internal manual

VAT Accounting Manual

HM Revenue & Customs
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Use of estimation for completing VAT returns: long-term estimation

Estimation is often encountered as a way of managing VAT cash flows by increasing the scope for input tax accruals. This is not a reason for refusing estimation. Accruals are a common feature of VAT accounting at large businesses and the claim for accrued input tax recognises that the legal conditions for claiming input tax can arise before the accounting conditions for posting the claim have arisen.

In deciding whether to approve such estimation you should consider the following:

  • It is for the business to demonstrate that there is a need to estimate VAT because of some objective feature of the business that cannot be avoided.
  • A need cannot arise simply to enable claim returns to be made before the due date. In the absence of an underlying need, such requests are to be refused.
  • Long-term estimation should not be allowed as a way of compensating for poor management or inefficient processes. This would simply create a competitive advantage over businesses that had incurred the cost of resourcing efficient accounting systems.
  • Estimation is only appropriate for input tax for which the chargeable event has passed at the period end date and for which the business holds a valid invoice at that time. It is not a way of compensating for late invoicing by suppliers.