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HMRC internal manual

VAT Assessments and Error Correction

Power of assessment: Best judgement: Calculating arrears using mark-up

The following are examples of how officers have used mark up to calculate arrears.

Example 1

In the absence of records and precise information from the business, the officer carried out a mark-up exercise based on his knowledge and expertise about the trade generally.

The tribunal upheld the assessment, case Playden Oasts Hotel - LON/90/1648.

Example 2

The main basis for the assessment was a mark-up exercise from information of purchases obtained from suppliers. As the business had very few records sales prices were agreed with the appellant.

The assessment was upheld, case K. Sedat t/a Sherrys Kebab and Burger Bar - Lon/90/1780.

Example 3

An assessment was raised on a food to drinks ration and a weighted mark-up calculated on the basis of a 6 week period said to be representative by the appellant.

As there were no menus for the period and a shortage of records, assumptions were made. The appellant was advised of the conclusions drawn from the exercise and invited to comment, which he failed to do.

The tribunal upheld the assessment, case MH Rahman t/a Khayam Restaurant - MAN/96/133.

Example 4

A weighted mark-up for the period chosen was applied linearly to previous periods back to the mark-up accepted by previous officers.

At that time, the mark-up was lower than that of the representative period. The tribunal accepted that the assessment was issued to best judgement and that the linear mark-up is an acceptable basis for an assessment

Based on this decision it should be possible, provided there is an agreement between the business and the officer relating to a period’s mark-up, to undertake a single period weighted mark-up and apply a linear relationship, case Terence Neil Wilshaw - MAN/96/277.