In Curtises Limited v HMRC [2018] TC06460, the First-Tier Tribunal (FTT) upheld HMRC’s penalty calculation for failing to notify an under assessment of VAT, finding that payments made on account under the Annual Accounting scheme should be ignored in calculating Potential Lost revenue for penalty purposes.

  • The taxpayer used the VAT Annual Accounting scheme.
  • It made payments on account under the scheme totalling £32,500, based on the prior year’s return.
  • Its VAT return was submitted late: HMRC raised an assessment for £35,578.
  • The taxpayer immediately made a further payment of £46,131 but failed to tell HMRC that its assessment was too low within the 30 day deadline to correct an under assessment.
  • A VAT return was eventually submitted showing a liability of £215,233.
  • The taxpayer paid the outstanding VAT of £136,603 a day later.
  • HMRC issued a 15% prompted Schedule 24 FA 20017 penalty for error on £179,655, calculated on the basis of  Potential Lost Revenue 'PLR'.
  • The taxpayer appealed

The FTT found that:

  • PLR is all the additional amount of tax that is due or payable as a result of correcting the inaccuracy or assessment.
  • The difference between what HMRC assessed and what the final VAT amount specified on the VAT Return was £179,655.
  • The taxpayer's payment made following HMRC's underassessment did not affect the PLR calculation: it would defeat the object of the legislation if it did and could possibly lead to manipulation by taxpayers in similar instances.
  • The penalty of £26,948 was correctly calculated.


If HMRC send you an assessment which is too low, you need to get this corrected, or tell HMRC it is too low, within 30 days of the assessment. After 30 days, a penalty may apply and this will ignore any payments you have made in the VAT quarter, or year in the case of Annual Accounting.


Annual Accounting

Penalties (VAT)

External link:

Curtises Limited v HMRC [2018] TC06460