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HMRC internal manual

Compliance Handbook

HM Revenue & Customs
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Penalties for Failure to Notify: Calculating the penalty: Potential Lost Revenue: Potential overpayments by other persons

General rule

When calculating the potential lost revenue (PLR) due to a person’s failure to notify, no account should be taken of any resulting overpayment by another person.


Sven failed to register for VAT. As a consequence he did not issue a VAT invoice with an amount of VAT on it when he made a sale to Benny, who was registered for VAT. If Sven had registered for VAT he might well have issued a VAT invoice to Benny. Had he done so, Benny might have been able to set this tax against his liability for the output tax he charged his own customers.

The PLR due to Sven’s failure to register is not reduced by any additional amount that Benny might have paid to us as a result of Sven’s failure.

Exception to the rule

When calculating the PLR due to a person’s (P’s) failure to notify, see CH71220, you can take into account tax overpaid by another person (Q) when

  • Q’s tax liability may (under the law) be adjusted by reference to P’s liability, and
  • any increase or decrease in P’s liability results in a corresponding decrease or increase in Q’s liability.

You adjust P’s PLR by the amount of tax Q has overpaid as a result of P’s failure to notify.


Anyanka Ltd, UK taxpayer, is required to make a transfer pricing adjustment to its corporation tax profits in respect of transactions with another UK taxpayer in its group, Gloriana Ltd.

If Anyanka Ltd makes the transfer pricing adjustment, Gloriana Ltd is able to claim a compensating adjustment.

If Anyanka Ltd fails to notify its liability to corporation tax, Gloriana Ltd is unable to claim a compensating adjustment. Anyanka Ltd’s PLR from its failure to notify is reduced by the additional amount of tax that Gloriana Ltd has paid as a result of the failure.