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HMRC internal manual

VAT Assessments and Error Correction

HM Revenue & Customs
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Power of assessment: Best judgement: Helpful pointers

The following pointers will help you ensure your assessment passes the best judgement test

  • there must be some material on which to base your judgement - do not pluck a figure from thin air or base it on gut instinct
  • your decision must reasonable and not arbitrary - be fair when making a judgement about the arrears and ensure you are seen to be fair and reasonable
  • consider all the relevant material including information provided by the business - do not discard any material which you feel is relevant. Do disregard any material or information that is not relevant.
    For Example: If the circumstances justify an allowance to be made for any stock losses, wastage, seasonal fluctuations, periods of closure (perhaps due to holidays or illness for example), or sales when goods are offered at reduced prices, then ensure allowance is given. If you believe information provided by the business is not relevant explain to the business why and keep a clear note as to why in your own records.
  • do take care when performing calculations. If the calculations are complex, then ask a colleague to check them. Although best judgement is not an exercise in mathematical accuracy, and an assessment is unlikely to fail simply because of an arithmetical error, you must take reasonable care when performing calculations.
  • do take account of weighting in mark-up exercises
  • if you have to base your assessment on one period of trading, do make sure you choose a representative period, and if possible agree it with the business. If you are performing a comparison based on a short period of trading, ask yourself if the length of the period chosen is reasonable in the circumstances. If it is, be prepared to demonstrate why and record the details
  • do remember, the strongest evidence will always be that which the business agrees with in principle. Where possible, an assessment based on more than one method will tend to be strong
  • do not make your assessment artificially high in the hope that the business will be forced to provide additional evidence
  • remember that you must be able to demonstrate the credibility of your assessment. Always ask yourself if your projections are within the capabilities of the business.
  • If possible issue a pre-assessment letter to the business detailing your proposed assessment. Give the business a reasonable amount of time in which to reply. It may agree your calculations or offer further information to disprove your assessment.
  • Remember that you do not have to carry out exhaustive investigations. You do need to be satisfied that the declared tax is incorrect or incomplete. If the business is unable or unwilling to provide all the information you have requested you would be fully justified in raising an assessment based on the information available. Bear in mind that the primary obligation is on the business to render accurate returns and you are not required to conduct a full audit of, or reconstruct the business records.