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HMRC internal manual

Compliance Handbook

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

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

A delayed tax inaccuracy is one that

  • results in an amount of tax being declared later than it should have been
  • always has two elements in different periods (one understatement and one or more overstatements) - and exceptionally in some cases even if a return for one period (that would contain the overstatement) is not yet due to be filed, and
  • specifically, meets the conditions on this page.

The delayed tax provisions only apply when both of the following conditions are met.

Condition 1 - nature of the inaccuracy

The nature of the inaccuracy is such that, when discovered, and without the person taking any action to correct it, the inaccuracy

  • has already been automatically reversed in one or more returns for a later period or periods.

In exceptional cases delayed tax may also be applied where the inaccuracy

  • would have been automatically reversed in one or more later return(s), but for HMRC intervention.

This means that the delayed tax provisions do not apply to any inaccuracy where a person has taken any extra action to correct it.

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 example, if a person claims a large refund prematurely, and it seems very unlikely that the person would make the same claim again in a later return, you can consider applying the delayed tax provisions.

For further examples, see CH82397.

Condition 2 - amount of tax

An amount of tax

  • is identified in the return for a later period that matches an amount which, but for the inaccuracy, would have been declared in the earlier period, see example at CH82395

In exceptional cases delayed tax may also be applied where the relevant tax

  • would have appeared in the return for a later period but for HMRC intervention, see examples at CH82397.

Note that it is possible that the inaccuracy may be reversed over more than one later period. You will need to decide, for each of these later periods, whether Conditions 1 and 2 are satisfied.

For examples of delayed tax, see CH82394-7.