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HMRC internal manual

Compliance Handbook

Penalties for Failure to Notify: Calculating the penalty: Potential Lost Revenue: VAT Registration - traders exempt from registration

An exempt trader must notify us of

  • any material change in the nature of their supplies, or a material alteration in the proportion of zero rated supplies, or
  • any acquisition from EU member states

that may affect their exempt status. Where the person fails to do so, the potential lost revenue (PLR) is the amount of VAT for which they are liable for the period from

  • the date on which the person should have been registered, to
  • the day before

    • the person notified us of their liability to be registered, or
    • we otherwise became aware that the obligation should have been met.

Allowable deduction

Where appropriate, the PLR is reduced by the amount of tax paid in another EU member state in relation to

  • an acquisition of goods from another member state or
  • distance sales made to the UK.


Pravat exceeds the VAT threshold on 31 December 2011 and applies to HMRC for exemption from registration on 6 January 2012. We are satisfied that he is only making zero-rated supplies and grant exemption from VAT registration on 7 January.

Pravat’s business changes and it starts making standard rating supplies on 1 August 2012. We become aware of this on 1 January 2013.

The change in the nature of supplies is material and Pravat is registered for VAT from 1 August 2012. He is liable to a penalty for failure to notify from 1 August 2012 to 31 December 2012. The PLR is Pravat’s VAT liability for the penalty period. This is the output tax due on the standard-rated supplies he made in the penalty period less any input tax he incurred in the course of making taxable supplies in the penalty period.


When you calculate the PLR for a person’s (P)’s failure to notify, you do not take into account any tax overpaid by another person because of P’s failure. The only exception to this is where that other person is allowed to adjust their tax liability by reference to P’s liability. There is an example of this at CH72640.

FA08/SCH41/PARA7 (5) & (6)