Many taxpayers of you face the issue of missing the final numbers to complete your tax return on a yearly basis. However the secret is knowing when and how to use estimated and provisional figures in tax returns. Using the wrong approach could have serious ramifications with HMRC.
What’s the Difference?
A provisional figure is considered a temporary measure Therefore, you use it because you expect to update it later. Maybe a final invoice is missing or your waiting to receive paperwork from a third party is. As a result, you're giving HMRC your best estimate for now. However you're committed to correcting it once the actual number(s) become available.
Conversely, an estimated figure is final. This should only be used where it's not possible to obtain a more accurate number. For example, the records were destroyed or lost, or a valuation is the best you can do. Furthermore it indicates, you won't amend these figures at a later date.
When to use provisional figures
Only use a provisional figure, where you've done everything possible to obtain the correct figure. Furthermore, you must indicate it’s your best effort based on the information available to you.
You should never leave boxes blank. This is because it sends a red flag to HMRC. Furthermore, HMRC regard blank boxes as an incomplete returns and you could be liable to financial penalties.
Reporting provisional figures
You can notify HMRC you’ve used a provisional figure by ticking box 20 on your tax return. However, it's important to disclose why you've used it and when you expect to have the final details. Consequently, by doing so, this will prevent unnecessary enquiries from HMRC.
Using estimated figures
An estimated figure may be used where you're unable to provide an accurate figure and you want HMRC to accept this as the final figure. However, it's very important to include a disclosure on your tax return to explain the rationale for using estimated figures.
Summary
Once you have the final figure, amend your return quickly. Although if you delay unreasonably, HMRC can initiate an enquiry which could lead to penalties, particularly if you are careless and use unjustified estimates.
Some might consider completing a Self-Assessment tax return to be a routine process. However misusing estimated or provisional figures in your tax return, may cause a headache with HMRC further down the line.
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