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HMRC internal manual

Compliance Handbook

Penalties for Inaccuracies: Calculating the penalty: Potential Lost Revenue: Overstatements

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

An overstatement is any inaccuracy that is not an understatement. That is, it has not led to

  • an understatement of a person’s liability to tax
  • a false or inflated statement of a loss, or
  • a false or inflated claim to repayment of tax, see CH81071.

During the course of a direct taxes compliance check, the person may claim further reliefs or allowances that are available to reduce the overall liability to tax.

These are not overstatements for the purpose of calculating the PLR.

However amounts required under The Taxes Acts or ordinary principles of commercial accounting that have been omitted from the return will be overstatements for the purposes of calculating the PLR, for further guidance see SACM2005.

Except for group relief, see CH82280 onwards, claims to further reliefs or deductions should be taken into account before commencing calculation of PLR arising from inaccuracies.

For example

Jorgen returned a profit of £15,000. During your compliance check you discover a careless inaccuracy of £5,000. Jorgen did not claim all the capital allowances he was entitled to claim in his return. He claims additional capital allowances of £3,000, and as the time limit for making the claim has not expired he is allowed to do so.

The Potential Lost Revenue (PLR) is calculated as follows.

Returned profit 15,000 @ 20% (say) 3,000
Additional capital allowances 3,000    
Amended profit 12,000 @ 20% (say) 2,400
Careless inaccuracy 5,000    
Revised profit 17,000 @ 20% (say) 3,400
PLR for careless inaccuracy     1,000

Jorgen realises he has omitted to include his overnight travel and subsistence costs incurred on both business trips away from his base operations, for further guidance see BIM47705.

Returned profits 15.000 @ 20% (say) 3,000
Less - Expenses omitted from original return in error 5,000  
Amended Profit 10,000 @ 20% (say) 2.000
Add - Careless inaccuracy 5,000  
Revised profit 15,000 @ 20% (say) 3,000
PLR for careless inaccuracy   NIL