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United KingdomGOV.UK

HMRC reverses VAT security input-tax rounding to down

Officers estimating input tax from VAT 1 turnover alone must now round the TPR-formula result down; the direction was previously up.

By Taxxa AI OyPublished 9 November 2026

Tax

Industry: Across industries

Where the only figure available for a VAT security calculation is the person's VAT 1 taxable turnover, HMRC must still allow for input tax, and the decision must be reasonable. If the officer is unsure what input tax to allow, the starting point is the Tax Performance Ratio for the person's trade class, read from the Compliance Risk Information Profile. The ratio itself is total output tax minus total input tax, divided by total input tax.

The input tax allowance may then be roughly estimated by taking 20% of the VAT 1 turnover and dividing it by the ratio plus one. The result must always be rounded downGOV. That instruction is the change: the figure was previously always rounded upGOV. The formula is otherwise unchanged.

The turnover-based estimate is a fallback, not the preferred evidence. Where the ratio data is unavailable, or as a cross-check, the officer should use the net VAT due on returns rendered by businesses of a similar size, location, trade class and customer base. If VAT 1 turnover is genuinely all that is held, a warning letter should go to the person prompting them to supply better information for the calculation. More accurate information may also come from visiting officers' reports on file, from asking the person directly, or from the person's own estimate of average liability based on the sales or income the business needs. That last source has a practical advantage: it is difficult for the person to dispute later.

Whatever the basis, the officer must keep a written record of how the security amount was reached. The record matters if the person appeals to the tribunal or asks for a review. The review and appeal route for securities decisions sits alongside the calculation guidance, and the written reasoning is what will be tested there.

Legal basis: HMRC Securities Guidance SG32310 (quantum calculation for VAT security from taxable turnover), with review and appeal rights at SG70200.

When estimating VAT security from VAT 1 turnover alone, apply the TPR formula, round the input-tax result down, and keep a written record of the calculation for any appeal or review.

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