Follower notices Judicial Review

We’re still slightly shocked by this recent Judicial Review!

The Queen (on application of Geoffrey Richard Haworth) V R & C Commissioners [2018] concerned the judicial review of the decisions of HMRC to issue a follower notice and an accelerated payment notice. The notice was in relation to gains arising to the trustees of a settlement from the disposal of assets during the 2000-2001 assessment year!

The decision in this ruling was arrived at despite no specific evidence that a thought process was applied and recorded to enable the issuing of notices. Also, there appeared to be no requirement to explain the place of effective management. It also appeared that HMRC need to meet measures consistent with the ordinary machinery of administration regarding s204 Finance Act 2014. The outcome of the judicial review is likely to be surprisingly disappointing to taxpayers facing follower notices.

HMRC had applied the principles and reasoning arising from another case (Smallwood) to the claimant’s case to determine whether there was a scheme of management controlled from the UK, which would deny the asserted advantage. Whilst it was decided that the follower notice provided an explanation of why HMRC considered that the Smallwood case was the relevant judicial ruling, it confirmed there was no statutory requirement to set out detailed facts that HMRC relied upon for its conclusion. In other words, HMRC don’t have to provide an explanation, which hardly appears in the spirit of fair treatment.

The review found that the administration and issue of notices were conferred on HMRC and measures were consistent with the ordinary machinery of administration. We do wonder whether a tax authority undertaking its duties should be akin to a machinery of administration!

There was no record of the conclusion of the review deciding that the follower notice should be issued. However, despite no record, it was found that it would be impossible for the claimant to contend that the review was incomplete. The officer provided clear evidence. She must have been satisfied that a review had been conducted and the conditions for a follower notice to be issued met because the case was put forward to the Workflow Governance Group. Obviously, professionals advising clients are encouraged to maintain contemporaneous records whereas it would appear HMRC are excused from this obligation!

It was accepted that the trustees (Mauritius) might have acted independently, although the arrangements in the claimant’s case were being run from the UK to a pre-arranged plan and Smallwood was the relevant judicial ruling. As such the place of effective management for these purposes was the UK although this concept seems to look through normal principles and tests on management and again seems wrong in principle.

The claimant contended that the court could not be confident that the designated officer had reached the required independent view to issue the accelerated payment notice. It was found that the designated officer could be satisfied that the scheme was not effective because there was a decision that a follower notice be issued. Interpreting this decision appears to mean that the designated officer’s requirement is replaced because a follower notice was issued, although that is not what the legislation reads – it still states that a designated officer being satisfied, which one would normally consider requires that officer to think rather than accept (and record that thought).

The views expressed in this news release are that of the author and the author cannot help to believe that fairness for taxpayers is being lost where avoidance schemes have been used.