Before travel, the difference between the appropriate standard & first class fares for the journey should be charged.
If you sit in 1st Class with a Standard ticket, then the NRCoC allows you to be treated as if no ticket is held.
If you board a Penalty Fare train in a Penalty Fare area, on which it is compulsory to buy before boarding, with no guard, you could be
prosecuted for sitting in 1st class. FCC have threatened people with prosecution in this circumstance (though not for ALRs, but the same principle would likely apply).
However if you board a friendly TOC such as TPE, then it is my understanding that you will be offered the appropriate excess.
In fact, the difference between TPE and FCC is so huge it's hard to believe they're owned by the same parent company at times!
East Coast do indeed have a rule about giving passengers extra rights if they approach the guard, here it is:
EC Revenue Manual said:
C7. How to calculate on-board Excess Fares
Season Tickets - 7 Day, One Month or longer
Opportunity to buy ticket before boarding the train
The Conditions of Carriage state that season ticket
boarding the train
upgrades must be done before travel, so charge
appropriate fare as though no ticket were held.
However, if the journey is EC-only and the passenger
approaches you before the journey commences, EC
will extend the upgrade facility to on-train.
(Passengers who do not do this and wait for ticket-
inspection staff to approach them should be charged
the full First Single as per NRCoC 38, or move to
Standard accommodation). Charge the difference
between the appropriate Standard and First Class
fares for journey or if cheaper charge the full First
Anytime / Day fare for the journey. No Railcard
discounts.
(And before anyone complains at the lack of consistency, if consistency were to be applied across all TOCs then I can guarantee it would result in less rights for passengers who are currently offered more extensive rights than the minimum stipulated in the NRCoC.)