Following last week’s Supreme Court ruling in the Murray Group Holdings Ltd and Others v HMRC (commonly known as the “Rangers Case”) HMRC will be issuing Follower Notices in respect of Employee Benefit Trusts.
A Follower Notice is issued where HMRC believe that there are enough commonalities between two cases that the ‘final decision’ in respect of one case applies to another. A final decision is one that has no right of appeal i.e. it has been made by the Supreme Court, an appeal has been rejected, an appeal is abandoned or not made within the time limits.
Follower Notices were introduced in Finance Act 2014 and can only be issued if the following four conditions are met:
Condition A: a tax enquiry is in progress into a return or claim made by the taxpayer, or the taxpayer has made a tax appeal that has not yet been determined by a tribunal or court or has been abandoned
Condition B: that the return, claim or appeal is made on the basis that a particular tax advantage results from particular tax arrangements
Condition C: HMRC are of the opinion that there is a judicial ruling which is relevant to the chosen arrangements
Condition D: no previous follower notice has been given to the same person in respect of the same tax advantage, tax arrangements, judicial ruling and tax period
The taxpayer has 90 days to respond and there is no right of appeal. However, they may choose to make representations to HMRC objecting on the basis that:
- the Follower Notice was issued ‘out of time’
- one of the conditions stated above is not met
- that the judicial ruling is not relevant to their circumstances
If representations are submitted, HMRC will then either confirm or withdraw the notice. If the Follower Notice is confirmed the taxpayer has must take corrective action by the later of the original 90 day date or 30 days from the date of the ‘confirmation’.
Where a return is still under dispute the taxpayer is required to make amendments and pay the additional tax due. Where a closure notice or tax assessment is under appeal the taxpayer should enter into an agreement with HMRC to settle the dispute.
Alternatively, a taxpayer may choose not to take corrective action where they are awaiting the outcome of a court case in relation to their own scheme. However, if that decision goes against them they will be subject to an additional penalty.
The maximum additional penalty is 50%, but HMRC have discretion to reduce this to 10% where the taxpayer has demonstrated full cooperation.
Cooperation is generally accepted to be where the taxpayer has provided HMRC with full calculations of the tax due and documents requested within the timescales specified; a maximum reduction in the penalty will be appropriate.
Perhaps perversely, where a taxpayer takes corrective action and submits the necessary documentation to HMRC, they are waiving their right to abide by the outcome of their own court case. Individuals must therefore give careful consideration to the likelihood of their review succeeding – particularly in view of the fact that, in relation to avoidance cases, social policy is increasingly trumping the strict interpretation of statute.
The penalty may be appealed to the Tribunal within 30 days of receiving the Follower Notice, but it is worth noting that other penalties may also be charged.
If the taxpayer ultimately wins their court case the penalty is discharged.
Edge Tax are experts in taxation and may assist you by reviewing the particulars of your historic affairs and offering fair, impartial advice of how to proceed following receipt of a Follower Notice. If you should decide that you wish to appeal or settle, Edge Tax are able to assist you by preparing rigorous representations or managing the settlement process from end to end.