Pay now, prove it later: challenging accelerated payment and follower notices

30 October 2014

Finance Act 2014 gifted to HM Revenue and Customs (HMRC) two powerful new weapons for the enforcement and collection of tax: 'follower notices' and 'accelerated payment notices'. These new powers substantially change the balance of taxpayer rights in favour of HMRC.

And HMRC has not been slow to make use of its new power.

  • Both types of notice have been issued to investors in film investment partnerships, following the Eclipse case and publicity around the high-profile investors in various Ingenious film partnerships.
  • Similar action is expected against those who used SDLT planning similar to the one in the DV3 case.
  • The Financial Times reported recently that, over the next 18 months, HMRC is set to issue notices to 33,000 individuals and 10,000 businesses that have taken part in arrangements that HMRC considers constitute tax avoidance.

The effect of a notice is that a taxpayer is forced to pay 'tax' to HMRC only on the basis that HMRC considers that such tax is due - rather than, through the usual channels of review and appeal, on the basis that tax is determined to be due. And the consequences for ignoring notices or failing to comply with them are serious.

What is a follower notice?

A follower notice can be issued to a taxpayer where:

  • a tax appeal or enquiry is in progress
  • the appeal or enquiry relates to tax arrangements from which the taxpayer has received a tax advantage (this phrase is widely defined, and includes merely avoiding a possible assessment to tax); and
  • in HMRC's opinion, there is a judicial ruling (including one made by the First-tier Tribunal) relevant to those arrangements

Any taxpayer who receives a follower notice must take 'the necessary corrective action' within the set time limits. Broadly, this means conceding all disputed points to HMRC. A taxpayer must do so by amending the relevant tax return and self-assessing the additional tax. If the taxpayer does nothing, or appeals but is unsuccessful, then he faces a financial penalty of 50% of the amount of the disputed tax. This applies in addition to the usual penalties for underpaid or late paid tax, subject to a statutory cap. There is a right of appeal against a penalty, or the amount of the penalty.

What is an accelerated payment notice?

An accelerated payment notice (APN) can be issued where:

  • a tax appeal or enquiry is in progress
  • the appeal or enquiry relates to tax arrangements from which the taxpayer has received a tax advantage; and either:
    • the taxpayer has been served with a follower notice
    • the arrangements are subject to the rules relating to the Disclosure of Tax Avoidance Schemes (DOTAS); or
    • a counter notice has been served in relation to that tax advantage under the general anti-abuse rule (-) following a panel review in which at least two of the members were of the opinion that the arrangements were not reasonable.

The APN must specify the payment required to be made, which is "an amount equal to the amount which a designated HMRC officer determines, to the best of the officer's information and belief, as the understated tax." A taxpayer in receipt of an APN who does not lodge an appeal must pay the tax within 90 days. There is a penalty of 5% of the unpaid 'tax' where it is not paid when it is 'due' (the penalty day), a further 5% penalty if not paid five months after the penalty day yet another 5% penalty if not paid 11 months.

When and how to object and appeal

A taxpayer is entitled to make representations objecting to a follower notice, and HMRC is required to consider those representations and determine whether to confirm or withdraw the notice. Representations need to be carefully and precisely crafted. There will be good grounds for a successful determination if the taxpayer can demonstrate that the notice was not properly issued - in particular, that the judicial ruling specified in the notice is not relevant to the taxpayer's arrangements.

The taxpayer has 90 days to make representations. If the result is not in the taxpayer's favour, then there is no specific process for a further formal appeal against the notice itself (although the taxpayer can appeal against the penalty). Judicial review then becomes the appropriate remedy as a matter of general law.

The threat of a 50% penalty is of grave concern in terms of access to justice. In many cases, it will deter would-be appellants with potentially robust claims from pursuing those claims at tribunal. However, the penalty may be reduced where the taxpayer has cooperated with HMRC by providing accurate information and responding promptly to correspondence - but the penalty cannot be less than 10%. It is always likely to be worthwhile contesting the level of the penalty, and judicial review may provide a good remedy where the amount of tax at stake is large enough to justify the costs involved.

In the case of an APN, the taxpayer (again) has a limited time in which to make representations objecting to its issue or the amount and (again) HMRC is required to consider those representations and determine whether to confirm or withdraw the notice or amend the amount due.

For more information about follower notices and accelerated payment notices, or for help and advice if you have received a notice and wish to make representations, appeal or apply for judicial review, please contact a member of our contentious tax team.


NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Gowling WLG professionals will be pleased to discuss resolutions to specific legal concerns you may have.

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