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HMRC internal manual

Compliance Handbook

Penalties for inaccuracies: calculating the penalty: Potential Lost Revenue: calculating PLR for multiple inaccuracies - example of interaction with delayed tax


Stuart PLC’s VAT return for the quarter ending 30 September 2015 includes VAT of £500,000 which should have been declared on the return for the quarter ending 31 March 2015. It is accepted that there has been a careless inaccuracy in the March 2015 return and that the understatement resulting from this inaccuracy has been automatically reversed in full by the overstatement in the September 2015 return.

The PLR for the inaccuracy of £500,000 in the March 2015 return is calculated by reference to the rules for delayed tax inaccuracies, see CH82390-2.

We then discover unrelated inaccuracies as follows

  • an overstatement of £700,000 on the March 2015 return
  • an understatement due to careless inaccuracy of £600,000 on the September 2015 return, and
  • an overstatement of £100,000 on the September 2015 return.

All understatements and overstatements are summarised in the table below.

Return period Delayed Tax Under-statement Delayed Tax Over-statement Other under-statement Other Over-statement Net
March 2015 (£500,000) Nil Nil £700,000 £200,000
Sept 2015 Nil £500,000 (£600,000) £100,000 Nil

So in these circumstances Stuart PLC is owed £200,000 for the March 2015 period and owes no tax for the Sept 2015 period.

However, if delayed tax understatements and overstatements were excluded from the multiple inaccuracy rules Stuart PLC would receive penalties as follows:

For the March 2015 return there would be a penalty for a £500,000 understatement with the PLR calculated applying the rules for delayed tax inaccuracies, see CH82390. The £700,000 overstatement in this period could not be used to set off the delayed tax. There would also be a penalty in period 12/15 based on normal PLR of £500,000.

This result is not what the delayed tax provisions were intended to achieve. As such where the periods covered by delayed tax also include an unrelated accuracy you should ignore the delayed tax rules and treat all of the PLR using the normal multiple inaccuracy rules at CH82250.

Although this will sometimes result in higher penalties this rule applies whether or not the unrelated inaccuracies were made despite taking reasonable care.

In the example given above, applying the normal multiple inaccuracy rules would result in no penalties being due as there is no PLR in either period but that will not always be the case.