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HMRC internal manual

VAT Assessments and Error Correction

General assessment procedures: Difficulty in attributing VAT to accounting periods

Where the liability relating to specific periods cannot be readily identified, best judgement should be used to attribute the VAT due in specific tax periods, see VAEC1400.

Such an attribution is recognised in Section 76(4) of the VAT Act 1994.

Difficulties in allocating tax to prescribed accounting periods may normally occur where

  • business records cannot be produced and the trader’s VAT liability is determined by reference to annual accounts
  • an under-declaration is identified by a shortfall between sales figures in annual accounts and sales declared on returns, or
  • an under-declaration is identified by a cash reconciliation exercise.

In such cases, the VAT liability should be allocated to tax periods by whichever method is fair and reasonable taking account of the information known about the business.

This may, for example, be a straightforward quarterly division, or on a pro rata basis in line with previous, or subsequent, verified declarations.