In HMRC v Comtek Network Systems (UK) Ltd [2021] UT 008, the Upper Tribunal (UT) allowed HMRC’s appeal against the First Tier Tribunal (FTT) decision allowing an appeal against Follower Notice (FN) penalties.

HMRC can issue a Follower Notice (FN) where they consider that there is a final judicial ruling that is determinative of a dispute between HMRC and a taxpayer in respect of a tax advantage.

Where an FN is issued, the taxpayer must take corrective action and accept that they do not have a claim for a tax advantage. HMRC can charge penalties of up to 50% of the tax in dispute if corrective action is not taken by a 90-day deadline.

The taxpayer can only resist a penalty if it can establish that it was 'reasonable in all the circumstances' not to take the necessary corrective action.

  • In 2011, Comtek Network Systems (UK) Ltd (Comtek) used a Stamp Duty Land Tax (SDLT) avoidance scheme which resulted in a tax saving of £22,200.
  • HMRC raised a determination in July 2015.
  • As no appeal was lodged to the FTT decision in Crest Nicholson (Waiscott) and others v HMRC [2017] UKFTT 0136(TC), HMRC issued Accelerated Payment Notices and FNs to Comtek in September 2017.
  • HMRC made further contact with Comtek by way of letter and phone prior to the deadline of 3 January 2018.
  • Comtek did not take corrective action by the deadline.
  • HMRC subsequently issued correspondence threatening penalties of 50% of the outstanding tax on 15 January 2018.
  • Comtek spoke to HMRC on the phone on 22 January 2018 and agreed to pay the SDLT in two instalments and subsequently made the payments.
  • HMRC wrote to Comtek on 14 June 2018 issuing a penalty notice for 50% of the tax due as it had failed to take the required action to the FN.
  • Comtek appealed to the FTT.

The FTT allowed the appeal finding:

  • Comtek had either decided to ignore the FN or decided that it was not going to respond.
  • HMRC’s communication throughout the process was unclear and inconsistent.
  • The question of whether it was 'reasonable in all circumstances' for a person to fail to take corrective action had two elements:
    • To establish 'all the circumstances' relevant to the failure to take corrective action.
    • To judge whether in those circumstances the taxpayer’s behaviour was reasonable.
  • Comtek had relied on the payment agreement with HMRC including any penalty and having brought matters to a close it had acted 'reasonably in all circumstances'.

HMRC appealed to the UT who allowed the appeal finding:

  • The FTT should have considered why Comtek chose not to take corrective action.
  • The question of whether it was 'reasonable in all the circumstances' not to take corrective action operates as a defence if no action is taken by a relevant deadline, not afterwards.
  • The FTT needed to take into account the purpose of the provisions that were designed to ensure that taxpayers were penalised if they failed to take action by a deadline unless they acted 'reasonably in all the circumstances”' in ignoring it.
  • Comtek ignoring the FN was self-evidently an unreasonable course of action.
  • Deciding the FN should not be filled out could have been a reasonable course of action depending on the reasoning Comtek gave. Comtek gave no justification.
  • The only conclusion the FTT could have made was that Comtek acted unreasonably in missing the 3 January deadline.
  • The level of the penalty was reduced to 30% of the tax due as a result of Comtek’s assistance in countering the tax advantage as:
    • It had agreed and honoured a payment plan for the SDLT liability.
    • Comtek had the belief that it had compromised its outstanding disputes with HMRC.

Useful guides on this topic

Accelerated Payments & Follower Notices
What action is required? What are the penalties for non-compliance? Is there a right to appeal?

SDLT: Amending returns
How do I amend an SDLT return?

External links

HMRC v Comtek Network Systems (UK) Ltd [2021] UT 008 (UK) Ltd [2021] UT 008

Crest Nicholson (Waiscott) and others v HMRC [2017] UKFTT 0136(TC)


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