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HMRC internal manual

Compliance Handbook

Penalties for VAT and Excise Wrongdoing: Calculating the penalty: Introduction

The penalty for a VAT or excise wrongdoing, see CH91200, is based on the amount of

  • VAT or the amount representing VAT shown on the invoice, or
  • excise duty unpaid because of the wrongdoing, or
  • for Landfill Tax, the amount of the Landfill Tax due on the disposal.

This tax or duty is the Potential Lost Revenue or PLR.

You work out the amount of the penalty by applying an appropriate percentage, see CH94600 to the potential lost revenue, see CH94250.

Where the wrongdoing is the supply of a product knowing that it will be misused, see CH91450, the maximum penalty percentage is 100% of the PLR.

For all other VAT and Excise wrongdoings appropriate percentage depends on whether the wrongdoing was

  • deliberate and concealed, see CH93100 
  • deliberate but not concealed, see CH93200, or
  • non-deliberate, see CH93300.

The maximum penalty percentage is

Type of wrongdoing Maximum penalty percentage
Deliberate and concealed 100 % of PLR
Deliberate 70% of PLR
Non-deliberate (this does not apply to Landfill Tax wrongdoings) 30% of PLR

In all cases you may reduce the penalty depending on the quality of the disclosure, see CH94850. The reduction may be to a minimum amount, see CH94800.