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The rate of the penalty chargeable on the taxpayer under the harmonised 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–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 Penalty reductions for inaccuracies 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