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HMRC internal manual

Compliance Handbook

Penalties for inaccuracies: calculating the penalty: delayed tax - impact on potential lost revenue calculation: introduction

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

There are special rules for calculating the potential lost revenue (PLR) for a delayed tax inaccuracy, see CH82392. These apply instead of the normal rules for calculating the PLR (which are at CH82150+).

A delayed tax inaccuracy is one that

  • results in an amount of tax being declared later than it should have been
  • always has two (or more) elements in different tax periods (an understatement followed by one or more overstatements) and
  • the timing of these elements are ‘closely linked’.

The delayed tax provisions cover cases where the inaccuracy only has a timing effect so that, comparing an earlier period with a later one, there is no overall loss of tax (assuming the same rate of tax applies to both periods). The timing of the under and over statements must be ‘closely linked’ - meaning there is a connection between how and why the original inaccuracy was made and when that amount was subsequently declared.

So for instance delayed tax would not apply if a person makes an underdeclaration in a return, and then subsequently accounts for that amount in a later return after resolving a cashflow problem. When the first inaccuracy was made the person did not know when or if the correct tax would ever be accounted for.

In contrast, if an inaccuracy will be automatically reversed without any further action by a person this will normally be ‘delayed tax’. This includes VAT tax point errors where the incorrect date used results in an overdeclaration in a later period. Another example would be where a person under-declares the value of closing stock in a return depressing profits, but the same depressed value is used as opening stock in the following return, increasing profits.

Exceptionally if you discover an inaccuracy before the person files a later return, and if you are satisfied on the balance of probabilities that the person’s accounting system would automatically reverse the inaccuracy in the later period, then this condition has been met.

For examples of delayed tax, see CH82394 to CH82397.

The delayed tax provisions can be applied for all schedule 24 inaccuracy penalty behaviour types - careless, deliberate and deliberate and concealed or when a taxpayer fails to take reasonable steps to notify HMRC about an inaccuracy, see CH81143.

The delayed tax provisions do not apply to

  • wrongly recorded losses, see CH82300
  • inheritance tax cases - because for IHT there will not be a later return in which any inaccuracy can be reversed.

You should not apply the delayed tax rules in cases where you discover other unrelated errors in the same period covered by the delayed tax. Where there are other inaccuracies see the guidance CH82180 and CH82250. This applies regardless of whether those inaccuracies are deemed to be errors despite taking reasonable care.  

FA07/SCH24/PARA8