As with Accelerated Payment Notices, Follower Notices are intended to assist with HM & Revenue’s larger crackdown against tax avoidance. I’ll explain what they are, and how to respond if you’ve received one.
A Follower Notice[1]Trusted Source – GOV.UK – HMRC Follower Notices is a formal notice issued by HMRC to inform a taxpayer that the scheme they’re involved with shares similar characteristics with a scheme that has already been successfully challenged by HMRC in the courts.
Purpose: The primary objective of a Follower Notice is to expedite the tax dispute process and recover what HMRC considers due tax more efficiently. This notice often accompanies an Accelerated Payment Notice, which specifies the amount of tax in question and the deadline for payment.
Legal Threshold: According to the UK Supreme Court’s ruling in R (on the application of Haworth) v HMRC [2021] UKSC 25, HMRC must meet a stringent criterion before issuing a Follower Notice. They must be certain that there is “no scope for a reasonable person to disagree” that a previous court ruling invalidates the tax advantage claimed by the taxpayer.
Response Time: Taxpayers cannot appeal against a Follower Notice but have 90 days to comply or respond.
Implications: Receiving a Follower Notice does not suggest intentional misconduct. Many taxpayers enter into such schemes based on professional advice, under the impression that they are legitimate. However, a Follower Notice indicates HMRC’s position that the taxpayer’s tax stance requires correction.
Under What Conditions Could you Receive a Follower Notice?
To issue a follower notice, HMRC must ensure that several specific conditions are met. These conditions are detailed as follows:
Condition
Description
Condition A
A tax enquiry or National Insurance contributions dispute is in progress, or an appeal has been made but not yet resolved.
Condition B (for tax)
The return, claim, or appeal is based on obtaining a particular tax advantage from specific tax arrangements.
Condition B (for NICs)
The appeal or dispute is based on obtaining a particular National Insurance contributions advantage from specific arrangements.
Condition C
HMRC believes there is a judicial ruling relevant to the chosen tax or National Insurance contributions arrangements.
Condition D (for tax)
No previous follower notice has been given for the same tax advantage, arrangements, judicial ruling, and tax period, unless withdrawn.
Condition D (for NICs)
No previous follower notice has been given for the same NIC advantage, arrangements, judicial ruling, and period, unless withdrawn.
What to do if you’ve Received a Follower Notice?
Have you received a Follower Notice from HMRC? If so, you’re likely wondering about your next steps. Let’s break down what this means for your business and how you should proceed.
Don’t panic, but act quickly. You have 90 days to respond, and it’s crucial to use this time wisely.
Seek professional advice immediately. Tax disputes require specialised knowledge. A qualified tax professional can provide invaluable guidance tailored to your situation.
Review the judicial ruling carefully. Does it truly apply to your case? Remember, HMRC can only issue a Follower Notice if they believe there’s no reasonable way to disagree that the ruling applies to your situation.
Consider your options:
If you agree that the ruling applies to your case, you may choose to comply by amending your tax return or reaching a settlement with HMRC.
If you believe the ruling doesn’t apply, you can submit written representations to HMRC within the 90-day period.
Weigh the potential outcomes. Complying might mean paying additional tax, but it could save you from penalties. On the other hand, challenging the notice might be worth it if you have a strong case.
Remember, receiving a Follower Notice doesn’t automatically mean you’ve done something wrong. It’s HMRC’s way of addressing what they perceive as high-risk tax arrangements. Your job now is to carefully evaluate your position and respond appropriately.
What are the Penalties for Not Complying with a Follower Notice?
Failing to take corrective action within the specified timeframe can result in significant penalties. As of 10 June 2021, the penalty for non-compliance with a Follower Notice is 30% of the disputed tax, with an additional 20% penalty if your appeal is later struck out by a tribunal or court, or if the tribunal or court finds that you have acted unreasonably in bringing or conducting the proceedings.
These penalties are in addition to any penalties related to an Accelerated Payment Notice (APN) that may have been issued alongside the Follower Notice.
References
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