Calculating the penalty for inaccuracies - potential lost revenue

By Tolley in association with Philip Rutherford
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The following Owner-Managed Businesses guidance note by Tolley in association with Philip Rutherford provides comprehensive and up to date tax information covering:

  • Calculating the penalty for inaccuracies - potential lost revenue
  • Potential lost revenue - over-stated losses
  • Potential lost revenue - delayed tax

The rate of the penalty chargeable on the taxpayer under the new penalty regime is based on the behaviour of the taxpayer and whether the error came to light from an unprompted or prompted disclosure. Once these factors have been decided, a penalty is calculated based on the potential lost revenue (PLR). The PLR is defined as the additional tax arising as a result of correcting the inaccuracy or assessment as determined by FA 2007, Sch 24, para 5. For the purposes of calculating the PLR, tax includes national insurance contributions. For HMRC guidance on PLR, see CH82150 to CH82273.

For details of the behaviours, see the Calculating the penalty for inaccuracies in returns - behaviour of the taxpayer guidance note. For more on whether the disclosure is prompted or unprompted, see the Calculating the penalty for inaccuracies in returns - behaviour of the taxpayer guidance note.

Over-statements, which can include previously unmade claims to reliefs or deductions available, are only set against understatements in calculating the PLR where they relate to the same type of liability and the same tax period. A worked example of an over statement set off against an understatement can be found at CH82260.

When determining the PLR and the behaviour associated with it the PLR from similar behaviours can be grouped together.

CH82200

The PLR will include tax for all years where the correcting of an inaccuracy involves more than one tax period. It will however be net of any allowable deductions or corrected claims made.

FA 2007, Sch 24, para 5

More on Penalties for inaccuracies in returns: