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HMRC internal manual

Compliance Handbook

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HM Revenue & Customs
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Penalties for Inaccuracies: Calculating the penalty: Potential Lost Revenue: Examples of PLR for an under-assessment

You must check the date from which these rules apply for the tax or duty you are dealing with. See CH81011 for full details.

Alec didn’t send his completed VAT return for the quarter ended 30 September 2011. We issued a central assessment for £20,000. Alec eventually submitted the VAT return which showed a liability of £27,000. He did not contact us at any time to tell us that the assessment was too low.

Scenario 1 (Return accepted)

Alec’s late return is accepted without challenge. The potential lost revenue (PLR) is £7,000 (£27,000 - £20,000).

Scenario 2 (Inaccuracy despite taking reasonable care)

An assurance visit establishes that Alec’s VAT return is inaccurate and that the correct figure of tax due is £30,000. The officer accepts that Alec had taken reasonable care in completing his return so there is no penalty for the inaccuracy. The PLR for the under-assessment is £10,000 (£30,000 – £20,000), that is, the difference between the amount assessed and the final liability.

Scenario 3 (Careless inaccuracy)

The facts are the same as for scenario 2 except that the inaccuracy in Alec’s VAT return is due to his failure to take reasonable care.

The PLR for the under-assessment is £10,000 (£30,000 – £20,000).

However, as Alec failed to take reasonable care he is also liable to a penalty for inaccuracy. The PLR for that is £3,000 (£30,000 - £27,000), that is, the difference between the amount returned and the final liability.

See CH84970 for the rules to be applied where more than one penalty is chargeable in respect of the same tax liability.