Are you a taxpayer looking to appeal a Follower Notice?
If you are a taxpayer that has been issued with a notice, Oliver Elliot can help you address How To Appeal An HMRC Follower Notice.
Tax Guides
Overview Of Appealing Against An HMRC Follower Notice
An appeal against an HMRC Follower Notice needs to be undertaken expeditiously, in an engaging and cooperative manner, otherwise, an expensive penalty can sprout for the taxpayer.
Stamp Duty Land Tax avoidance scheme references seem to be regularly sprouting in the Tax Tribunals. A recent post on tax avoidance causing a tax penalty failed on appeal by the taxpayer. In the case of Revenue and Customs v Comtek Network Systems (UK) Ltd (STAMP DUTY LAND TAX) [2021] UKUT 81 (TCC) (“Comtek”) HMRC appealed a decision in the First-Tier Tribunal and the taxpayer does not appear to have jumped past HRMC. HMRC’s appeal succeeded in the Upper Tribunal (“UT”).
What Is An HMRC Follower Notice?
An HMRC Follower Notice is a notice that can arise when there is a final ruling that resolves a dispute between HMRC and a taxpayer in relation to a particular tax advantage or tax avoidance scheme.
What Legislation Permits Follower Notices?
The legislation that permits HMRC to issue Follower Notices is set out in Part 4 of the Finance Act 2014.
When Do HMRC Follower Notices Typically Arise?
HMRC Follower Notices typically arise following a tax investigation into a tax avoidance scheme.
Why Do HMRC Follower Notices Have Serious Implications?
HMRC Follower Notices potentially have serious implications for the taxpayer because if the taxpayer does not in effect acknowledge that their dispute has failed and does not give up on the tax avoidance or advantage relied upon, they can be charged an HMRC tax penalty up to 50% of the tax in dispute. This can involve potentially eye-watering amounts of HMRC tax penalties.
What Happened In The Comtek Case In The Upper Tax Tribunal?
This was a case in which the taxpayer entered into an HMRC tax avoidance scheme attempting to save Stamp Duty Land Tax in the sum of £22,0000.
It appears that the taxpayer did not take the required corrective action and as a result, HMRC issued it with a tax penalty.
The FTT issued a decision on the action undertaken. The FTT said:
-
It is clear that something has gone badly awry here with HMRC’s communication in relation to the APN and the FN. Letters coming from different parts of HMRC are inconsistent. The clearest example of that is HMRC’s letter demanding payment of the SDLT even though an agreement to pay (on any view, in relation to SDLT) had already been reached, and honoured.
-
It is also clear to me, on the basis of the information and materials before me, that the Appellant was genuinely labouring under the belief that the matter had been concluded by way of the agreement to pay, including any penalty. It seems to me that belief was reasonable, and credible. That belief was already fully formed in January 2018: several months before the penalty was actually issued. Albeit not without hesitation, I consider that this is an unusual case in which, just about, the Appellants have succeeded in persuading me, on balance, and looking at all the circumstances in the round, that their non-compliance was reasonable.
HMRC appealed to the Upper Tribunal.
The Stamp Duty Land Tax Scheme
Mr and Mrs Sheibani bought a property on 31 August 2011 through an unlimited company for £555,000. Immediately following purchase the property was transferred for no consideration to Askar Sheibani and Comtek Network Systems (UK) Limited (“CNS”) (the respondent to the HMRC appeal). It was declared to the Land Registry by the unlimited company as transferor and with Mr Sheibani and CNS were the transferees. The transfer was referred to as a ‘distribution in satisfaction of a return of capital for no chargeable consideration’.
The Judicial Ruling Relied Upon By HMRC: How To Appeal An HMRC Follower Notice
This scheme was a ‘sub-sale distribution in specie’ scheme designed to avoid stamp duty land tax. HRMC decided it did not work in view of the decision in Vardy Properties v Vardy Properties (Teeside) Ltd v HMRC [2012] UKFTT 564 (TC).
In the meantime, a further Tribunal decision sprung up in the matter of Crest Nicholson (Wainscott) and others v HMRC [2017] UKFTT 136 (TC) which was a similar scheme to that used to purchase the Property. That decision was released on 1 February 2017, giving HMRC a year in which to issue a Follower Notice: FA 2003 section 204(6)(a). HMRC treated that as the final judicial ruling relevant to the chosen arrangements: see Finance Act 2003 sections 204(4) and 205(3).
The Appeal to the Upper Tribunal
The Upper Tax Tribunal noted that corrective action was not taken by the deadline of 3 January 2018 to fill in a form to take corrective action or, if not to ignore it, to decide that the form should not be filled in.
The Tribunal said that to not fill in the form is an “unreasonable course of action”. If a form was not to be filled in the Tribunal said that it could amount to reasonable conduct but that would depend upon the quality of explanation provided, ie. such as the reasonable grounds that the judicial authority relied upon was ineffective or even perhaps wrongly decided. The problem in Comtek was it seems no such case was put forward.
It seems that the FTT found that the taxpayer’s conduct was not reasonable in all circumstances of the case but the Upper Tribunal appears to have said that did not give rise to complete exemption from the HMRC tax penalty.
HMRC’s appeal was allowed. However, the taxpayer did cooperate and the taxpayer did surrender its dispute by agreeing to a payment plan, honouring it and held a belief that it was compromising all outstanding disputes with HMRC. Although it was held that the taxpayer’s action was insufficient because of the timing of it making arrangements with HMRC, the Tribunal recognised that public resources were saved by the surrender of the dispute and as such it would be harsh to deny any credit in relation to the HMRC tax penalty.
As a result, the penalty was put at 30% instead of the maximum of 50%.
What Next? Expert Advice Is Just A Click Away
If you have any questions in relation to How To Appeal An HMRC Follower Notice then Contact Us as soon as possible for advice. Our expertise is at your fingertips.
Disclaimer: How To Appeal An HMRC Follower Notice
This page: How To Appeal An HMRC Follower Notice is not legal advice and should not be relied upon as such. This article How To Appeal An HMRC Follower Notice is provided for information purposes only. You can Contact Us on the specific facts of your case to obtain relevant advice via a Free Initial Consultation.
