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This blog post part 1 in a series of blog posts that considers Follower Notices. It is a quick overview as it is easier to understand the caselaw with a brief overview of the background. 

Follower Notices (“FNs”) were introduced to counter tax avoidance. They were introduced at the same times as Accelerated Payment Notices (“APNs”) though they are different regimes. FNs render the recipient liable to a penalty if he does not take steps to counteract or surrender a tax advantage.

The key legislation is contained in Part 4 of the Finance Act 2014 (“FA 2014”). For National Insurance Contributions, the relevant legislation is contained in the National Insurance Contributions Act 2015. 

HMRC may give a FN to a person (“P”) if the following 4 conditions are met (section 204 FA 2014)

  1. Condition A:
    1. P has made a tax appeal but that appeal has not yet been determined by the tribunal or disposed of.
    2. A tax enquiry is in progress into a return or claim made by P in relation to a relevant tax, or
  2. Condition B: the return, claim or appeal is made on the basis that a particular tax advantage (“the asserted advantage”) results from particular tax arrangements.
  3. Condition C: HMRC is of the opinion that there is a judicial ruling which is relevant to the chosen arrangements.
  4. Condition D: no previous FN has been given to the same P by reference to the same tax advantage, tax arrangements, judicial ruling, and tax period.

An FN may not be given after the end of the period of 12 months beginning with the later of (section 204(6) FA 2014):

  1. The day on which the judicial ruling in Condition C is made, and
  2. The day the return or claim in Condition A was received by HMRC or the appeal was made.

For the purposes of Condition C, when a judicial ruling is “relevant” is contained in section 205:
205 “Judicial ruling” and circumstances in which a ruling is “relevant”
(1) This section applies for the purposes of this Chapter.
(2) “Judicial ruling” means a ruling of a court or tribunal on one or more issues.
(3) A judicial ruling is “relevant” to the chosen arrangements if–
(a) it relates to tax arrangements,
(b) the principles laid down, or reasoning given, in the ruling would, if applied to the chosen arrangements, deny the asserted advantage or a part of that advantage, and
(c) it is a final ruling.
(4) A judicial ruling is a “final ruling” if it is–
(a) a ruling of the Supreme Court, or
(b) a ruling of any other court or tribunal in circumstances where–
(i) no appeal may be made against the ruling,
(ii) if an appeal may be made against the ruling with permission, the time limit for applications has expired and either no application has been made or permission has been refused,
(iii) if such permission to appeal against the ruling has been granted or is not required, no appeal has been made within the time limit for appeals, or
(iv) if an appeal was made, it was abandoned or otherwise disposed of before it was determined by the court or tribunal to which it was addressed.
(5) Where a judicial ruling is final by virtue of sub-paragraph (ii), (iii) or (iv) of subsection (4)(b), the ruling is treated as made at the time when the subparagraph in question is first satisfied.
It is important to note the contents of an FN when it is received. Following section 206 FA 2014, a FN must identify the following:

  1. The relevant judicial ruling in respect of which Condition C above is met.
  2. It must explain why HMRC considers that the ruling meets the requirements of a relevant judicial ruling.
  3. It must explain P’s rights to make representations to HMRC objecting to the notice.
  4. It must explain how the penalties operate in relation to FNs.

The penalties operate where an FN is given to P and is not withdrawn. P will be liable to pay a penalty if the necessary corrective action is not taken in respect of the denied advantage before the specified time. 

The corrective action is a specific set of steps laid out in sections 208(5) – (6) FA 2014.

The first step requires P to amend a return or claim to counteract a denied advantage OR to take all necessary action to enter into an agreement with HMRC (in writing) for the purposes of relinquishing the denied advantage.

​The second step requires P to notify HMRC that P has taken the first step AND of the denied advantage and the additional amount which has or will become payable in respect of tax by reason of the first step being taken.

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