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HMRC internal manual

Compliance Handbook

Penalties for Inaccuracies: Calculating the Penalty: Potential Lost Revenue: Multiple inaccuracies

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

The multiple inaccuracy rules work to make sure that

  • where tax is charged in increasing rate bands, the potential lost revenue (PLR) from the more serious behaviours is calculated using the highest rates of tax, and
  • any overstatements, see CH82260, are set against the PLR for the most serious behaviours last.

Where the PLR is based on the additional amount due or payable as a result of putting right the understatements, the overall PLR cannot be greater than the combined effect of the understatements and any overstatements for the same tax period, see CH81030.

The PLR rules for delayed tax inaccuracies, see CH82390, do not apply where there are other unrelated overstatements or understatements in either period covered by the delayed tax. See the example at CH82273.

Increasing rate bands

Where there is more than one inaccuracy in a document the order in which the inaccuracies are corrected may affect the amount of PLR. Where tax is due at different rates the PLR for the inaccuracy corrected first may be at a lower rate of tax than the inaccuracy corrected last.

The multiple inaccuracy rules require the PLR to be calculated for inaccuracies in the following order.

  1. Mistakes despite taking reasonable care.
  2. Careless inaccuracies.
  3. Deliberate but not concealed inaccuracies.
  4. Deliberate and concealed inaccuracies.

This means that the PLR for the most serious behaviour will be charged at the highest rate of tax.

Overstatements

Overstatements, see CH82260, of the same tax for the same tax period are set against the understatements in the order set out above. This ensures that the PLR for the most serious behaviour is retained at the highest rate of tax. There is an example of this at CH82272.

Overall, the PLR cannot exceed the tax effect of the understatements less overstatements for the tax period.

If the overall effect of the overstatements and understatements is that the tax liability is overstated when the document was submitted, there will be no PLR.

You may discover that an overstatement can be set against an understatement after a penalty assessment has been issued. If you can issue a revised tax assessment to take into account the overstatement, you may also recalculate the PLR and penalty and issue a revised penalty assessment.

Remember that you calculate the PLR for inaccuracies in a specific document. You should consider inaccuracies in other documents for the same tax period separately.

For further guidance on how to calculate the PLR for multiple inaccuracies, see CH82270.

FA07/SCH24/PARA6